Bankruptcy and Improving your Credit Score

Most people are under the impression that bankruptcy is the worst thing for your credit. Many believe it is a last resort after all other avenues have been exhausted (draining 401K or other retirement, borrowing money from friends or relatives, selling possessions, etc.). Would you be surprised to learn that you can improve your credit through a Chapter 13 or actually erase past poor credit choices through a Chapter 7 to make a fresh start without depleting your retirement funds, liquidating your personal property, or borrowing additional money?

While there is no quick fix for bad credit scores, we have options that may put you on a faster track to improvement.

According to FICO, the most common credit-scoring system, here are some tips for improving your credit score:

“Paying your bills on time is the most important contributor to a good credit score. Delinquent payments and collections can have a major negative impact on a credit score. A credit score reflects payment patterns over time, with more emphasis on recent information.” If you have missed a payment, get current and stay current. The longer you pay your bills on time, the better your credit score.
Minimize outstanding debt
Avoid overextending yourself
Refrain from applying for credit needlessly
Pay off debt rather than moving it around
“Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your credit score over the long term.”

So how can this information empower you to make the choice to employ a Chapter 13 reorganization plan or a Chapter 7 fresh start? We will show you point-by-point below.

Chapter 13 – A positive choice for your credit

The Chapter 13 plan has a built-in mechanism to establish regular monthly payments to your creditors. Each month you are in the plan, you are turning over funds to a court appointed Chapter 13 Trustee. This Trustee will make regular, consistent payments to your creditors through a court-approved repayment plan. This ensures that your bills are paid on time and no late reports are sent to the credit agencies.
The Chapter 13 minimizes outstanding debt by providing 0% interest repayment on unsecured debts and arrearages (past-due payments) on secured debts. This means that you are paying down straight principal debt and reducing debt each month of the program.
The Chapter 13 program deters participants from overextending themselves, as the court requires that new debt (in the amount over $1,000) be approved by the court.
Finally, the Chapter 13 program is designed to pay down debt rather than moving it around. Each payment to unsecured creditors goes straight to principal debt. At the completion of the program, you will be rid of all unsecured debt obligations either through payment or court-discharge of unsecured debt.

For more information on how the Chapter 13 program could assist you in improving you credit, please call our office toll free at 866-261-8282 for a free consultation or click here to schedule a consultation right now.

Chapter 7 – A Clean Credit Slate

Chapter 7 is a debt elimination program designed to wipe the credit slate clean and allow you the opportunity to re-build your credit. Through the Chapter 7 proceeding, you will receive a full court discharge of all unsecured debts and property that you surrender through the program (i.e. home that you can no longer afford, etc.). After this discharge, you have the opportunity to:

Begin paying your bills on time. With reduced debt, you may finally have the ability to pay all of your bills each month. Remember, although your full payment history is evaluated, FICO puts “more emphasis on recent information.”
More minimal outstanding debt and eliminated budget items that were no longer affordable.
Apply for credit carefully to avoid getting over-leveraged again.
Demonstrate financial stability through prudent budgeting and wise credit choices.

Chapter 7 provides immediate debt relief and the long-term opportunity to improve your credit standing.

How Long does it take to Re-build a Credit Score?

According to FICO, “you don’t rebuild a credit score…you rebuild credit history, which is reflected in your credit score.” How do you do this? While there is no “quick fix,” beginning the process of reasonable repayment through Chapter 13 reorganization or making an immediate fresh start through the Chapter 7 program could be your first actionable step towards improving your credit over the long run. Certainly if you do nothing, your credit will not improve on its own.

Our attorneys specialize in debt resolution and credit restoration though utilizing the Chapter 7 and Chapter 13 programs. Please call us for a free consultation ( toll free at 866-261-8282) or click here to schedule a consultation right now. We are here to provide you with our insights and advice with action steps to improve your credit and create a more stable financial future.