By the book, bankruptcy filings generally remain on credit reports for seven years (Chapter 13) or ten years (Chapter 7). These time periods sometimes prevent people from filing necessary bankruptcies. But there is more to this story.

Bankruptcy is probably the most serious hit a credit score can take. However, contrary to popular myth, this procedure does not “ruin your credit score.” If you are considering this option, your credit score is probably very low already. Additionally, bankruptcy looks better than repossession, foreclosure, collections referrals, and related items. These entries indicate that the debtor quit. People who filed bankruptcy at least did something.

Additionally, by following some simple steps, many people at least partially rehabilitate their credit scores in twelve to eighteen months. More on that below.

How Chapter 7 and Chapter 13 Help Distressed Debtors

If you are thinking about filing bankruptcy, credit score is probably the least of your worries. Legally, once debtors are official delinquent, creditors can initiate adverse actions like:

• Repossession,
• Foreclosure,
• Wage garnishment, and
• Collection lawsuits.

Bankruptcy’s Automatic Stay prohibits all these adverse actions. Generally, Section 362 goes into effect immediately and remains in effect as long as the bankruptcy is pending.

Foreclosure is probably the worst of these adverse actions. Georgia is a non-judicial foreclosure state. So, the bank does not have to go to court to take your house. Legally, foreclosure proceedings can begin after just one missed payment. 

The good news is that bankruptcy does more than halt adverse actions. It also protects key assets, such as your home equity. Other exempt assets include motor vehicles, personal property, and retirement nest eggs. 

Distressed debtors must act quickly to take advantage of these protections. Bankruptcy easily stops adverse actions. But if the bank forecloses on a loan or repossesses an asset, these actions are difficult to undo.

Types of Bankruptcy and Credit Score Impact

Chapter 13 filings fall off credit reports faster than Chapter 7 filings because, in a Chapter 13, the debtor must satisfy all secured debt arrearage. So, to many banks, Chapter 13 looks better than Chapter 7. The seven-year rule holds true for most other kinds of negative information.

Bankruptcy looks bad, but as mentioned, it looks better than late payments. For example, if a debtor defaults on a signature loan, every month the credit bureau adds another negative note. So, the credit score goes down every month.

Bankruptcy stops this process. There are no more 30-day, 60-day, and 90-day delinquency notes. There is only a one-time “discharged in bankruptcy” notation.

Do not expect your credit score to shoot up the day after this negative information comes off your credit history report. In fact, credit scores often decline after bankruptcy filings disappear. Chapter 7 and Chapter 13 explain bad credit, at least to an extent. Once these notations fall off, the debtor did not pay debts on time.

Quickly Rebuilding Your Credit Score

As mentioned above, debtors who proactively rebuild their credit scores often rebound in months instead of years. Here are some ways you can help yourself recover from bankruptcy more quickly:

• Build a Payment Reserve: Make thirteen payments a year on auto loans and other secured debts. You will probably not miss the extra $100 or so per month, and the reserve builds goodwill with the creditor. 
• Get a Credit Card: Advising former bankruptcy debtors to borrow money might seem strange. But responsible credit use is usually the quickest way to rehabilitate a credit score. Use the card each month, and pay off the balance each month.
• Remember What You Have Learned: Chapter 13 debtors must remit a monthly debt consolidation payment to the bankruptcy court. This payment usually requires financial discipline. So, do not go nuts once this obligation ends. Continued sacrifice brightens your family’s financial future.

If your family follows these tips, after a few years pass, you might not remember that you filed bankruptcy at all.

An Athens bankruptcy lawyer can give you more information in this area. An attorney does more than file paperwork. Only a lawyer can give you solid advice before, during, and after your bankruptcy.

Call Our Georgia Bankruptcy Attorney Today to Rebuild Your Credit Score

It’s largely up to you how long bankruptcy stays on your credit report. Also, it’s not like your credit score will improve overnight once your bankruptcy is removed from it. The good news is that if you work dedicatedly, you can rebuild you credit score and recover from bankruptcy in a matter of months. For a free consultation with an experienced bankruptcy lawyer in Athens, contact Morgan & Morgan, Attorneys at Law P.C. on on (706) 843-2905. We routinely handle matters in Clarke County and nearby jurisdictions.

Lee Paulk Morgan

Lee Paulk Morgan

With more than 41 years of experience in the areas of Bankruptcy, Disability, and Workers’ Compensation, Lee Paulk Morgan is one of the most respected Bankruptcy and Disability attorneys in Athens, Georgia. His tireless dedication to serving clients has gained him the reputation of a premier attorney in his areas of practice, as well as the trust and respect of other legal experts, who often refer clients to him.