Bankruptcy and Your Credit Score

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Learn more about bankruptcy in Texas and its effect on your credit score.

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Bankruptcy and Your Credit Score:

Bankruptcy and Your Credit Score Understanding the Basics

Bankruptcy Chapters:

Bankruptcy Chapters

An individual may file bankruptcy under chapter 7, 11, 12 or 13 of US Bankruptcy Code:

An individual may file bankruptcy under chapter 7, 11, 12 or 13 of US Bankruptcy Code

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Chapter 11 Bankruptcy #1

Typically used by small businesses:

Typically used by small businesses

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Chapter 12 Bankruptcy #2

Family farmers or fishermen:

Family farmers or fishermen

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Chapter 13 Bankruptcy #3

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Wage earner plan Rarely used – is a three to five year wage garnishment

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Wage earner plan Is a three to five year wage garnishment

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Chapter 7 Bankruptcy #4

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Bankruptcy Timelines

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Not all bankruptcies are the same with regard to time lines

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Credit Score—Date of Filing Bankruptcy

Almost all unsecured debts are discharged in a Chapter 7 bankruptcy in 3 ½ months leaving you able to work on paying bills and increasing the credit score:

Almost all unsecured debts are discharged in a Chapter 7 bankruptcy in 3 ½ months leaving you able to work on paying bills and increasing the credit score

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Most credit scores improve after Chapter 7

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Credit Score after Discharge

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A debtor’s credit score may actually increase noticeably right after the bankruptcy is discharged

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Long-Term Impact on Credit Score

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How bankruptcy impacts a debtor’s credit score in the long run depends on a variety of factors

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Discharged debts will remain on report but show as discharged 1

Lenders place differing levels of importance on a previous bankruptcy:

Lenders place differing levels of importance on a previous bankruptcy 2

Debtor needs to have stable employment and sufficient income:

Debtor needs to have stable employment and sufficient income 3

Credit cards, car loans, and other types of credit may be available during and after Chapter 7 discharge:

Credit cards, car loans, and other types of credit may be available during and after Chapter 7 discharge 4

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Mortgage Loans after Bankruptcy

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With a steady income, most individuals can apply for an FHA loan within two years a chapter 7 discharge

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Depends on what type of bankruptcy filed

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Depends on what type of bankruptcy filed Typically takes at least 2 years before debtor can qualify for a mortgage after Chapter 7 discharge

Debtor may qualify for FHA mortgage after one year of payments in a chapter 13 or two years after Chapter 7 discharge:

Debtor may qualify for FHA mortgage after one year of payments in a chapter 13 or two years after Chapter 7 discharge Depends on what type of bankruptcy filed Typically takes at least 2 years before debtor can qualify for a mortgage after Chapter 7 discharge

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Credit after Bankruptcy

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Debtor should not shy away from all credit after bankruptcy

Be cautious and selective but apply for at least one credit card after bankruptcy:

Be cautious and selective but apply for at least one credit card after bankruptcy

May need to obtain a secured credit card:

May need to obtain a secured credit card

Use the card sparingly:

Use the card sparingly

Pay it off each month Pay it off on time:

Pay it off each month Pay it off on time

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Ways to Improve Credit Score after Bankruptcy

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A debtor can take numerous steps to help increase his or her credit score after a bankruptcy

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Want to Know More About Bankruptcy and Its Effect on Your Credit Score?

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Click to visit: centraltexasbankruptcy.com Get Your Bankruptcy Questions Answered Content provided by Best Legal Practices