I am often asked: What will be the effect of a bankruptcy upon my credit score? What these people should be asking is: What is my credit score now? Is it good right now?
In most cases, clients have very poor credit already. They are under constant pressure from creditors. Many clients are defendants in lawsuits or have a judgment against them. They have suffered from repossession of their vehicle. They may have even suffered or are now suffering from the foreclosure of their home. At the least, they are suffering from delinquencies in the payment of their credit cards, in most cases multiple delinquencies. All of that is reflected on their current credit reports.
Under the Fair Credit Reporting Act, all of this credit collection activity is reported and it may continue to be reported for the following seven years. A Chapter 7 Bankruptcy stays on your credit report for ten years. A Chapter 13 Bankruptcy will continue to be reported by credit reporting agencies for a period of seven years.
So the answer is that while the Chapter 13 or Chapter 7 bankruptcy may affect your credit, it may be already bad to begin with. The bankruptcy bars and alleviates the collection activity above-stated and may even have a good effect on your credit because of this.
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