People who find themselves struggling with establishing financial security might consider filing for bankruptcy. It is a major decision that will impact one’s credit report.
There are various forms of bankruptcy that can be filed, here we focus on the common Chapter 7 bankruptcy.
What Does Chapter 7 Bankruptcy Entail?
Chapter 7 bankruptcy is also referred to as “straight” or “liquidation” bankruptcy. It is designed to give one a fresh start by releasing a person from many types of debts.
A trustee will be put in charge of the process. That trustee can categorize everything a person owns (from fridges to land) into “exempt” and “non-exempt” property. Only non-exempt property can be sold to pay creditors.
Some people have very little non-exempt property and end up keeping most, or all of their property under chapter 7 bankruptcy.
How Long Does Chapter 7 Bankruptcy Stay On Your Credit Report?
A person who files for Chapter 7 bankruptcy will be notified if they qualify based on an assessment. If approved, the chapter 7 bankruptcy will be recorded on your credit record for 10 years.
Can Bankruptcy Be Removed From Your Credit Report?
Once a bankruptcy case is recorded on a credit report; it will appear for 10 years.
A bankruptcy entry can only be removed if it has been mistakenly recorded on a credit report. One then has the right to dispute the error and have it removed.
How Do You Qualify For Chapter 7 Bankruptcy?
Not everyone qualifies for Chapter 7 bankruptcy. A court will assess you according to a Chapter 7 “means test”. This is based on calculating if your income is enough to repay creditors after essential expenses
If you can afford to pay something to your creditors, the court might switch your Chapter 7 case to a “Chapter 13 bankruptcy”.
Bottom Line
Filing for bankruptcy has serious financial consequences, but is unavoidable in some cases.
Chapter 7 bankruptcy can give an individual a fresh start by freeing them of debt, but a credit report will reflect the bankruptcy for 10 years and will affect a person’s future credit score.
