Will Filing a Chapter 7 Bankruptcy Damage Your Credit?
Most people believe that filing a bankruptcy will damage their credit or make it impossible to gain new credit for a period of 7 – 10 years. This is simply not true and in fact most people are surprised to learn that filing bankruptcy is most likely the first step towards improving your credit.
Call us today at 866-261-8282 to speak with one of our experienced Chapter 7 bankruptcy attorneys and find out how filing Chapter 7 could improve your finances. We offer free consultations on the phone or at one of our six office locations: Detroit, Ann Arbor, Dearborn, Southfield, Flint or Warren, Michigan.
How Chapter 7 Bankruptcy Actually Improves Credit and Your Credit Score
It is true that a bankruptcy filing appears on your credit record for up to ten years. It is also true that most often filing a bankruptcy will improve your credit score long before that notation expires from your report.
The two main drivers of your credit score are:
- Your Debt-to-Income Ratio (accounts for 30% of your credit score)
- Your Recent Payment History (accounts for 35% of your credit score)
The Chapter 7 inherently improves both of these credit factors and allows you to make a fresh financial start. With less debt, your debt-to-income ratio improves. With less debt, you can focus your available income on staying current on bills, not servicing old debt. These two factors combined (65%) go to work to improve your credit score.
Chapter 7 Bankruptcy is a fresh start debt elimination program. By filing you will:
- Eliminate unsecured debts, such as credit card, medical bills, personal loans, etc
- Receive court protection from your creditors (creditor calls, creditor harassment, judgments, garnishments, etc.)
- Surrender property that you can no longer afford with no additional financial obligation
- Benefit from the opportunity to re-negotiate a home or vehicle contract through a re-affirmation agreement or the 722 Redemption program.
- Wipe the slate clean with regards to your credit.
This “clean slate” will allow you to start over and work to improve your credit.
The credit reporting tool (powered CreditXpert) that we use provides a "predictive credit scoring" tool for all of our Chapter 7 clients. It simulates changes to the credit file to calculate the potential credit score impact of a Chapter 7 bankruptcy filing. For over 80% of our clients, their credit score is predicted to IMPROVE just 12 months after their Chapter 7 discharge. See this example (picture to the right) of an actual credit report. The score was predicted to improve by 151 points or over 26%! We find this tool really helps clients to understand he positive step they are taking for their credit and long-term financial future.
Rebalance Your Budget Using Chapter 7 Bankruptcy
By eliminating debt, you reduce your debt-to-income ratio. This will assist you in getting credit after your court discharge of debt – credit you may have been unable to qualify for prior to filing for Chapter 7.
A Chapter 7 Bankruptcy will also eliminate certain debts that may be obstructing your budget. By eliminating these debts, you may be able to balance your budget and concentrate your income on other debts, such as your mortgage, vehicle payment, maintaining monthly utilities, etc. Maintaining timely payments to your creditors is an important function of credit. Restoring consistent, on-time payments to your creditors after filing for Chapter 7 will begin to improve your credit score.
The Chapter 7 process spans 4 – 5 months from filing to discharge. Once you receive your court discharge you are no longer obligated on those debts. You are free to pursue new credit and will likely be surprised by the amount of offers you receive to gain credit. We encourage our clients to choose wisely in accepting new credit. We have found that it is not difficult to improve your credit after a Chapter 7 discharges if you:
- Set and maintain a reasonable budget
- Make sensible credit choices and maintain timely payments
- Pay off credit cards in full each month or avoid using them if you can’t
Trust the Chapter 7 Bankruptcy Specialists
Our attorneys are thoroughly trained in Chapter 7 bankruptcy law. At your convenience we can meet to discuss how filing a Chapter 7 may be a positive step toward financial stability and credit restoration. Call us today at 866-261-8282 for a free phone consultation or schedule online. We look forward to earning your trust.
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.