Ways in Which an Arizona Bankruptcy will Affect Your Credit Score
Your future depends on the decisions that you make today. Filing for bankruptcy is obviously a major move that will have a profound impact on your financial well-being in the years to come. Questions about the way in which an Arizona bankruptcy will affect your credit score happen to be quite common.
In most situations, filing for bankruptcy will lower your credit score. If you’re already behind on debt payment, however, chances are that your credit history isn’t the best one. The bankruptcy isn’t going to have that much of a severe impact and it may be the best way to deal with the situation.
Chapter 7 and Chapter 13 Bankruptcies: How They Impact Your Credit Score
When examining the effect of bankruptcy on your credit history, we’ll first have to take a look at the chapter under which you’re going to be filing.
Some people believe that a Chapter 13 bankruptcy is a much better idea because it features some debt repayment. This isn’t always the case. New credit will not be received until the older debt is discharged. Until this happens, the credit score will probably be abysmal.
When a person files for a Chapter 13 bankruptcy, the discharge will not become a fact until the completion of the repayment plan. Under a Chapter 13 bankruptcy, the debt repayment will continue for a period ranging from three to five years.
A Chapter 7 bankruptcy is usually faster and the discharge will come in anywhere between four and six months. As a result, a person filing for a Chapter 7 bankruptcy will begin rebuilding their credit much faster. The problem is that the qualification criteria for bankruptcy under the chapter happen to be a lot stricter. People in Arizona can also file for a Chapter 7 bankruptcy once every eight years.
A Bankruptcy “Restarts” Your Credit Score
Bankruptcy filing in Arizona can be seen as an opportunity to reboot your credit score and start from scratch.
While there could be some exceptions to the general rule, people who file for a bankruptcy are already in a dire financial situation. There are multiple entries on the credit history. Once recorded, these remain in the history for a period of seven years. The seven-year period will start after all active accounts in collection are closed.
Because of this important specific, a bankruptcy provides the person in debt with an opportunity to wipe the slate clean and begin building their credit again.
Through the discharge of debt in a bankruptcy, credits are no longer valid. This way, the seven-year period can commence.
Bankruptcy and Getting a Loan
Filing for bankruptcy will be noted in your credit history. In fact, this information will remain on file for a period of 10 years. You may be worrying about your ability to get loans in the future with your bankruptcy filing being displayed center stage.
A bankruptcy filing may affect your ability to get a new loan in the first few years after it appears on your record. After that, the situation will probably get back to normal.
Many people see a massive improvement in their credit score in just one year after the bankruptcy discharge. A poor credit score is one below 500 points. Anyone who has some good debt in their report and who is punctual with payments could go above 650 points in one year.
While getting a loan in the first years after filing for bankruptcy will be possible, the conditions aren’t going to be optimal. Because you have bankruptcy on your file, you are considered a high risk client. This is the main reason why a financial institution may propose a high interest rate in an attempt to protect its assets. In Arizona bankruptcy will affect your credit score. If possible, you may want to wait for a few years before taking a loan. Chances are that the conditions will improve significantly.