Bristle & Yi Law, PLLC

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Bankruptcy and your credit health

Financial struggles are common, and sometimes bankruptcy is the only way out. If this is the case, you have two filing options; Chapter 7 or Chapter 13.

Chapter 7 bankruptcy or “straight bankruptcy” allows you to often keep your exempt property (car, clothes, furniture, etc.). Nonexempt property, such as: property that’s not your primary home, valuable collections and investments are not safe. Anything the court appointed trustee can sell is nonexempt property. In turn for giving up your property and assets, some or all of your debts will be forgiven. Your income cannot be higher than a certain amount to qualify for Chapter 7. This amount varies by state.

Chapter 13 bankruptcy states that you pay back some or all of your debt in a three to five-year period instead of a trustee selling your assets to clear your debt. Chapter 13 has no income requirements or limitations, but you must have and keep a steady income to qualify and continue this bankruptcy option.

To see if you qualify for either filing option, take a “means test.”

Will bankruptcy affect my credit health?

Yes, it will, for a number of years and not in a good way. Bankruptcy offers a fresh start, but also hinders your options to rebuild your credit. Bankruptcy will severely damage your credit health; thus, it will be hard to obtain loans, credit and other avenues that help rebuild your score when managed correctly. Chapter 7 bankruptcy stays on your credit report for 10 years from the date you file. Chapter 13 stays for seven years but will often remain on your report for up to 10 years if you don’t consistently meet the conditions.

Don’t lose hope though. You can rebuild your credit score, but it takes diligence and patience. On your credit report, debts paid through bankruptcy will be labeled as “discharged” or “included in bankruptcy”. Where you can breathe easy is that these debts will also read as a zero balance.

The quickest way to help your credit report in the eyes of lenders is to obtain a secured credit card. Don’t be scared of the word “credit,” as this isn’t a typical credit card. With a secure card, you deposit money onto the card, but make sure the amount you deposit you can payback on a monthly basis. Small amounts work best because they are manageable, and the issuer of your secure card can share your activity with major credit bureaus.

The final point

The main thing to understand is that bankruptcy of any kind should be a last resort after all other avenues are exhausted.  It takes cutting out the many bad habits that lead to bankruptcy to recover from bankruptcy.

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Bristle & Yi Law, PLLC
9200 Church Street
Suite 202
Manassas, VA 20110

Phone: 703-278-2027
Phone: 703-454-0701
Fax: 703-649-6368
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