Types of Bankruptcy Filings

• Chapter 7 and Chapter 13 are the primary bankruptcy types for personal filers. Chapter 11 is used for business filings. Congress made changes to the bankruptcy laws in 2005, making Chapter 13 bankruptcy filings more favorable. Under Chapter 13, the court issues a payment plan for a three- to five-year period. This allows the consumer to pay off debts without forfeiting any property. After the time period expires, all remaining debts are discharged. Chapter 7 bankruptcy discharges all debts and may include liquidation of nonexempt assets. Exempt assets may include cars and household items. There is a risk of losing a home under a Chapter 7 filing if there is a lien on it.
  
  

Bankruptcy Effect on Credit Score

• Both the bankruptcy filing and the subsequent debt discharge remain on the credit report for up to 10 years. Consumers can expect a drop of at least 200 points or more after filing for bankruptcy. Chapter 13 bankruptcy filings remain on a credit report for seven years. A Chapter 7 remains on a report for seven to 10 years. Despite the bankruptcy's extended appearance on the credit report, its effect starts to diminish from the moment the debts are discharged, especially if the current payment history remains positive. It is important to note that student loans, child support and alimony cannot be discharged in a bankruptcy and will still appear on the credit report.
  
  

Rebuilding Credit After Bankruptcy

• Consumers should review the credit report after the debts are discharged to make certain that all the accounts included in the bankruptcy reflect the discharge. In some cases, accounts continue to appear as open and overdue. This will continue to hurt your score. Contact the credit bureaus to correct mistakes as soon as possible.
  
  Apply for a secured credit card that reports to the credit agencies as well as one with little or no annual fee. Start managing credit wisely to raise your credit score. Building a solid payment history by keeping current on all financial obligations is key for recovery.
  
  

Alternatives to Bankruptcy

• Consumers struggling with credit card debt often feel that filing for bankruptcy is the best solution. Unfortunately, the stigma of a bankruptcy lingers for several years, resulting in higher interest rates, credit card rejections and sometimes issues with obtaining new jobs. If debt is not extreme, nonprofit credit counselors can work with consumers to provide debt management advice while avoiding bankruptcy. They can assist with setting up budgets and analyzing financial spending. Counselors can also help consumers negotiate better terms with creditors. The new bankruptcy laws require individuals to attend credit counseling at least six months before filing.