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How Long Does Bankruptcy Affect Your Credit?


You might have heard the urban legend that, if you file for bankruptcy, you will never be eligible to borrow money again, or that you will be ineligible for credit for the next seven years.  Neither of these rumors is true.  Bankruptcy is not a temporary or permanent financial death certificate.  It also does not erase your entire credit history.  Florida law recognizes six different types of bankruptcy, but most individuals file for chapter 7 or chapter 13 bankruptcy, since the other types, since the others are for specific categories of filers, such as businesses, farmers, municipalities, or people whose creditors are based outside the United States.  Bankruptcy filings appear on your credit report for several years, though, and they affect your credit score.  To find out more about which bankruptcy option is best suited to your long-term financial goals, contact a Boca Raton chapter 7 bankruptcy lawyer.

Short-Term and Long-Term Effects of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called liquidation bankruptcy, because it typically involves selling (liquidating) assets that you own and using the proceeds from the sale to pay your debts.  Don’t let the term liquidation scare you away from chapter 7 bankruptcy, though.  The assets that you need to continue working and to fulfill basic needs such as shelter are exempt from liquidation.  If you own very few assets, you may be able to file for chapter 7 bankruptcy without liquidating any assets.

The debt relief that you get from debts being discharged in chapter 7 bankruptcy usually occurs within five months of you filing the petition.  The bankruptcy filing can remain visible on your credit report for up to ten years, but it typically only has an adverse effect on your credit score for three years or less.

Short-Term and Long-Term Effects of Chapter 13

Chapter 13 bankruptcy does not require you to liquidate any assets; instead, it requires you to enter into an agreement with your creditors, where you will make payments on your debts for about five years.  As you continue to make the payments as agreed, your credit score will gradually improve.  At the end of the agreement period, which can be anywhere from three to five years (36 to 60 months), the discharge of debts will also affect your credit score for the better.  The chapter 13 bankruptcy filing will remain visible on your credit report for about seven years.

If you are considering filing for bankruptcy, then you probably have bigger things to worry about than the mere appearance of the bankruptcy filing on your credit report.  The effect on your credit score is only one of the factors to consider when making decisions about filing for bankruptcy.  Your lawyer can help you make the best decision about whether to choose bankruptcy, debt consolidation, or another option.

Filing for bankruptcy could clear the path toward achieving your financial goals.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.

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