Loan and Equity Help

Bankruptcy should always be treated as the absolute last resort for anyone in who is facing a large amount of debt. While the appeal of having large amount of debt absolved and being given the opportunity for financial rebirth are large, it’s an absolute necessity to remember that filing any type of bankruptcy can have disastrous effects upon your credit report and score.

While this fact is widely known by the public, most do not know which chapter of bankruptcy makes a bigger mark on your financial history. For most consumers, there are two chapters that can be filed; chapter 7 or chapter 13. This simple comparison will tell you the differences in severity between the two chapters’ effects on your credit score and report.

Chapter 7 Bankruptcy

Filing chapter 7 bankruptcy will have a much worse and longer-lasting effect on your credit score than any other type. Chapter 7 bankruptcy can sink your credit score to a point so low that it will be at least two years of perfect credit maintenance before opening new lines of credit or obtaining loans stops being extremely difficult.

It’s no secret that filing chapter 7 will drastically reduce your credit score, but what many credit users are not aware of is that filing chapter 7 bankruptcy will stay on their credit report for ten years. That means for the next decade, any creditor or lender can refuse to offer you credit or loans purely based on the fact that you have filed bankruptcy in the past.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, while still detrimental to your credit score and report, is considerably less harmful than chapter 7. This is primarily because chapter 7 bankruptcy is designed to erase everything that a debtor owes, while chapter 13 bankruptcy creates a payment plan for debtors to pay back what they owe over an extended period of time.

If you have the means to make regular payments, chapter 13 can often achieve similar results to chapter 7, but with a lot less damage to your credit report. This doesn’t mean that chapter 13 leaves your credit score unscathed. Getting your score back up to a respectable level after filing chapter 13 can often take just as long as recovering from chapter 7.