CHAPTER 7 BANKRUPTCY AND YOUR CREDIT--
HOW FILING CHAPTER 7 BANKRUPTCY AFFECTS YOUR CREDIT
Article written on Nov. 2, 2017 by Suffolk County Bankruptcy Lawyer
Call me at 631-234-3883 for a free consultation
Or text me at 631-714-6446
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My bankruptcy law office is located at 3100 Veterans Highway,
Bohemia, NY 11716
If you are thinking of filing a Chapter 7 bankruptcy, you are probably concerned
about how filing a Chapter 7 will affect your credit.
First, the downside:
1) A Chapter 7 bankruptcy stays on your credit profile for 10 years from when
the Chapter 7 is filed with the Bankruptcy Court.
2) A Chapter 7 bankruptcy will most likely lower your credit score. Some of my
clients have mentioned that their credit score went down to the high 400s after filing
a Chapter 7.
Now, the upside:
1) Filing a Chapter 7 bankruptcy improves your income-debt ratio. The Chapter 7
discharges and eliminates your credit cards, medical bills, personal loans,
repossessed car loans, etc. As a result, your income-debt ratio improves. After
discharging your unsecured debt in a Chapter 7, your income-debt ratio will be all
income versus no unsecured debt (other than the few debts that don’t get
discharged in a Chapter 7). This is attractive to potential lenders because you are
now in a better position to repay any credit which they are thinking of giving to you.
In fact, when you apply for credit, your income-debt ratio is often what banks and
lenders focus on more than anything else. The main concern of any potential lender
is - - do you have the ability to pay back whatever credit we are thinking of give
you? As such, steady all income and no debt is a good position for you to be in.
In addition, lenders are aware that you can only file a Chapter 7 bankruptcy every
8 years. So, if you have just filed a Chapter 7 bankruptcy, a potential lender doesn’t
have to worry about you filing a Chapter 7 bankruptcy on any credit they are thinking
of giving you.
Another thing to keep in mind is that if you are thinking about filing a Chapter 7
bankruptcy, you very likely already have more debt than you can handle - - meaning
that you do not have a good income-debt ratio. You can reach a point where you
have so much debt, compared to your income, that you can’t get any more credit.
So, what happens is, you apply for credit but get turned down - - because the
lender runs your credit report and concludes (by comparing your income to your
outstanding debt) that you don’t have the ability to repay the credit that the lender is
considering give to you. Also, if you already have a lot of debt showing up on your
credit report, a lender may conclude that you look like someone who is going to be
filing a Chapter 7 bankruptcy soon. This will most likely result in your credit
application getting turned down. If you already have a lot of outstanding debt - -
especially if a) your outstanding debt is more than you can handle and b) you
already have bad credit - - your credit will improve by discharging your debts in a
Chapter 7 bankruptcy. A Chapter 7 will eliminate your credit cards, medical bills
and hospital bills, personal loans, repossessed car loans and will give you a fresh
start. You will receive your Chapter 7 discharge order from the Bankruptcy Court
approximately 3 ½ months from when the Chapter 7 has been filed with the
Bankruptcy Court. Once you have received your Chapter 7 discharge, if you have a
steady job, you are now someone with steady income and no unsecured debt (who
can’t file a Chapter 7 bankruptcy for another 8 years). This is something that is
attractive to lenders. So that now, anyone who is considering giving you credit will
realize that they are first in line to be repaid (as opposed to, say, 11th or 20th in
line). Also, they don’t have to worry about you filing a Chapter 7 bankruptcy against
them because you just filed one.
Next - - how do you improve your credit score after filing a Chapter 7 bankruptcy?
Keep in mind - - you do not have to wait 10 years or any amount of time to start
rebuilding your credit after a Chapter 7 bankruptcy. In fact, you should start trying
to improve your credit right away. The best way to improve your credit score after
filing a Chapter 7 bankruptcy is to pay back debt on time going forward. In other
words, you want to build up a track record, going forward, of paying back debt on
For some tips on the best ways to rebuild your credit after filing a Chapter 7
bankruptcy, please go to my web page Rebuilding Credit After Bankruptcy. That
web page discusses some helpful tips on how you can rebuild your credit after filing
a Chapter 7 bankruptcy.
Call Suffolk County Bankruptcy Lawyer Alan Pressman at 631-234-3883 (or
text to 631-714-6446) for a free consultation on Chapter 7 bankruptcy
3100 Veterans Highway Bohemia, NY 11716
My law practice is 100% bankruptcy
I have been actively handling chapter 7 bankruptcy cases in Suffolk County,
Long Island for 30+ years
Copyright Alan Pressman, Attorney At Law 2017