While bankruptcy does enable you to get rid of most if not all of your debts, the fact that you filed for bankruptcy will remain on your credit record for a specified period of time, depending which type of bankruptcy you choose.
In essence, a Chapter 7 bankruptcy will be deleted from your credit record ten years after the date of filing. Chapter 13 is deleted earlier, just seven years after filing. The reason for this time variation is due to the fact that a portion of the debt must be repaid under a Chapter 13 discharge plan, while none of the debt has to be repaid under Chapter 7.
How Credit Records Work
There are three credit reporting agencies in the US, Experian, TransUnion and Equifax, and all three compile reports that contain succinct information about your finances, including loans, current debts, and bill payment history. The credit reports show who you are and where you live and work, as well as whether you have been arrested, sued, or have filed for bankruptcy.
Credit reporting agencies also determine a credit score for each person, rating their credit risk at any one point in time. The higher your score the easier it will be for you to get a loan, including a mortgage or vehicle finance.
Lenders use credit reports to get information about people wanting to borrow money. The reports help them decide whether to grant loans or not, as well as determine what rate of interest they will charge. Insurers, rental property owners and prospective employers use credit reports for similar reasons.
Every person is entitled to a free report from each of the credit reporting agencies every year. It’s prudent to check yours to be sure of your situation, and just in case there is an error, in which case you can take steps to have the situation rectified.
Free credit reports do not include your credit score, but you can get this if you pay a fee.
Chapter 7 or Chapter 13?
The fact that a Chapter 7 bankruptcy remains on credit reports longer than a Chapter 13 doesn’t mean you should necessarily opt for the latter. Both have advantages and disadvantages, depending on personal circumstance.
One of the primary advantages of a Chapter 13 bankruptcy is that you can save your home, your car, and other items covered by Georgia’s exemption laws. Retirement plans and pensions are also exempt. It’s considered the best option for people who own valuable property. Generally Chapter 7 is better for people who are in really dire circumstances and don’t have major assets they need to protect, though a home exemption can protect your house, unless there is more equity in the property than permitted in the exemption.
Another factor to consider is reflection of judgments on credit reprots. With a Chapter 13, judgments will remain on your credit report until the debts are repaid according to the bankruptcy order. With a Chapter 7, once the bancruptcy has been discharged, which usually takes only a few months, judgments will be removed.
If you are considering bankruptcy, we can help determine which option is best for you and your family. Call us for advice and pricing.