Chapter 7: What Are Its Effects on My Credit?
After filing Chapter 7, you want to get back on track as soon as possible. This entails finding ways to boost your finances and continuing to function normally throughout the post-bankruptcy period.
Two of the most common concerns about Chapter 7 are the effects it has on your credit and your options for rebuilding it following the discharge. Thanks to your trusted bankruptcy attorney, you will find out everything about how Chapter 7 impacts on your credit score.
Does your credit score go up after Chapter 7 discharge?
Since filing bankruptcy is considered a negative action regarding your future loan eligibility, your credit score will go down by a number of points after your Chapter 7 discharge. The drop will depend on the state of your credit score prior to the discharge. Essentially, the higher your score, the steeper the decline.
For example, if your starting credit was somewhere around 780 (excellent), on average, your score will drop by 240 points or so. Conversely, a drop of only 150 points will ensue a starting credit score of about 680 (fair).
Therefore, you are bound to end up with a bad credit score after your discharge. However, filing Chapter 7 is still a favorable option since it clears all the debt you’ve incurred. Once you receive a discharge, you can immediately start taking measures to improve your credit score and ameliorate your financial situation.
How do I build my credit after Chapter 7?
The next step after clearing your debt is deciding how you will go about rebuilding your credit. Fortunately, there is a wide range of available choices, all of which will surely help you overcome the crisis. Some of the most beneficial possibilities include:
- A secured or retail credit card
Even though your purchasing power will be damaged by Chapter 7 bankruptcy, it should still give you some room for maneuver. In general, check if you are eligible for:
– A secured card: To qualify for a secured card, you will need to provide the lender with an upfront deposit which will serve as an insurance in case you aren’t able to make payments. The loan you are granted is equal to the amount of the deposit given.
– A retail card: This option may come in useful since retail cards typically have less stringent credit requirements than other unsecured cards. Still, you should bear in mind that they come with high-interest rates and penalty fees.
- A credit-builder or secured loan
A credit-builder loan is granted differently from your typical loans. In a nutshell, you don’t get the money upfront and make payments later. Instead, you make payments first, during which time the loan is transferred to a savings account and will be available after your final payment.
On the other hand, secured loans entail collateral (e.g. a car, or funds in a savings account) which can be claimed should you fail to repay the loan.
- A co-signed loan
For this alternative, you will need a family member or a friend willing to take on the risk of repaying the loan in case you aren’t able to. It can be immensely helpful, but at the same time, you need to make sure that you meet all the payments. Otherwise, the loan can severely harm your relationship with the co-signer.
Your seasoned bankruptcy attorney has got your back
Chapter 7 bankruptcy can be so complex and stressful that it may prove overwhelming. Your credit score is just one in a series of factors that you need to consider prior to the proceedings. Luckily, Chang & Diamond are here for you to shed light on all you need to know about the bankruptcy process.
Rely on our expertise to be able to enjoy what your heart desires. Dining in Seaport Village will once again be a luxury you can afford.
Chang & Diamond always come through. Contact us now!