Filing for bankruptcy has a lasting and damaging effect on your credit rating. Contrary to popular belief, filing for bankruptcy is not going to make your debts vanish from your credit report. These debts will remain on your credit report for a period of time or until you deal with them and improve the damage done to your credit. Understanding the two different kinds of bankruptcy is also vital to know before you consider filing.
Kinds of Bankruptcy
A Chapter 13 bankruptcy does not mean that your debts are wiped out. Instead, this is a reorganization of your debt. What will occur in the bankruptcy proceedings is that you and your creditors will prepare a plan to get the money paid back on a time table that will actually work. This type of bankruptcy succeeds for people that are having a short-term financial crisis, such as a job loss or an illness. Even though this type of bankruptcy will remain on your credit report for seven years, it does show to future creditors that you are planning to pay for your debts. If you can get your debt paid off after you have filed for a Chapter 13 bankruptcy, then you will be qualified for new credit after about a year.
Filing for Chapter 7 bankruptcy is much more significant, and has the greatest effect on your credit report. Except for child support, alimony, or unpaid income taxes, your other debts are absolved. However, obtaining new credit cards or loans is highly unlikely for at least two years, and the bankruptcy filing will appear on your credit report for 10 years. You may still obtain a federal student loan after filing for Chapter 7 bankruptcy, as discriminating against those who have filed for Chapter 7 bankruptcy and then have applied for this type of loan is against the law.
Improve Your Credit Score
Following a bankruptcy, it is important to work on bringing your credit score back up. Immediately after the bankruptcy, it can be challenging to get credit. Even two years after a Chapter 7, you may have trouble getting a home loan. A year is the minimum amount of time after a Chapter 13 that you will be qualify for a mortgage. Getting a credit card will be very difficult, and requirements for each lender will vary.
Following bankruptcy, you will need to prove to lenders that you have mended your ways and that your financial situation is under control. It is tremendously important to pay all your bills on time, since even one late payment on your credit report will appear to lenders as if you are still experiencing financial difficulty. Expect to pay a higher interest rate on most loan types following bankruptcy. However, once you work to repair your credit, you can try to refinance these loans at more moderate rates.
Most lenders really only look at the past year or two of your credit record. This gives you the opportunity to rebuild your credit much sooner than you might expect. Be willing to meet the conditions that a lender asks for up front, and you will be well on your way to getting a better credit rating.
You may want to look at Pauma Valley affordable homes for sale. You can also explore Pauma Valley affordable homes for sale.