For many, filing for bankruptcy is a last resort for dealing with overwhelming financial obligations when there is little hope that they can repay creditors. For some, those debts arise over unforeseen events, such as illness or injuries that create massive medical expenses.
Bankruptcy can be a positive step for many people to regain control over their finances. It’s a legal proceeding that can negatively affect your credit, but the good news is that you can eventually heal if you take the proper steps after filing.
How does bankruptcy appear on your credit report?
Bankruptcy is a public record and will show up in your credit report, and that could have an impact on potential creditors in the future. The two main types of individual bankruptcy that will appear are:
- Chapter 7: Allows you to keep exempt property, such as a car, clothes and furniture, while a trustee appointed by the court will sell other assets. In return, some or all your debts may be forgiven, but it will stay on your credit report for 10 years.
- Chapter 13: This allows you to keep all your property and create a three- to five-year plan to repay your debts. This will stay on your credit report for 7 to 10 years, depending upon whether you meet all the requirements.
How do accounts show up on your credit report?
All debts you acquired will remain listed on your report, including credit cards and medical bills. Those debts will likely be reported as “discharged” or “included in bankruptcy.” Lenders will see this and could deny your credit application as a result. However, the good news is they’ll no longer be listed as “past due,” and your credit score will gradually begin to recover.
Check your credit for errors
Once your debts are discharged, it takes a couple of months for the new status to show up on your credit report. Refer to a list of all accounts included in your bankruptcy and make sure they are updated on your report. Your credit won’t begin to rebound until the correct information is added. While no one wants to file bankruptcy, it can sometimes be the best way to regain your financial freedom. An experienced attorney here in New Jersey can help you with the complicated process and help you decide whether it’s the best option for you.