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The Impact of Bankruptcy on Your Credit Score in Texas

 Posted on August 31, 2023 in Credit Score

TX debt lawyerFiling for bankruptcy in Texas can provide critical financial relief when you are buried in unsustainable debt. However, it also inevitably affects your credit score and report. Here is a look at how different types of bankruptcy filings can impact your credit in Texas, both short and long term and how an attorney can help.

The Immediate Credit Score Drop from Bankruptcy

Your credit score will decrease significantly in the months immediately following either a Chapter 7 or Chapter 13 bankruptcy filing in Texas. This happens for several reasons. First, all accounts included in the bankruptcy will be closed or marked with a negative status, subtracting from your credit mix. Your credit utilization ratio will suddenly jump since your total limits decrease while balances owed may remain similar pre-filing.

Bankruptcy can also impact your payment history, as any missed payments leading up to or during the bankruptcy are reflected. Finally, the public bankruptcy filing itself on your report drags the score down. The extent of the drop depends on your starting score, but a decrease of 50-150 points is very common in the first few months after filing.

Comparing Chapter 7 and Chapter 13 Bankruptcy Impacts

Filing a straight liquidation bankruptcy under Chapter 7 initially has a greater negative impact on your credit score compared to filing a Chapter 13 debt restructuring plan. Chapter 7 shows you fully defaulted, whereas Chapter 13 demonstrates you are repaying debts under court protection. So Chapter 13 can be better long-term if you successfully make all payments and receive a discharge after completing the 3-5 year repayment plan.

How Long Bankruptcy Stays on Your Credit Report

A record of both Chapter 7 and Chapter 13 bankruptcies will remain on your credit report for 10 years from the filing date in Texas. This means the public bankruptcy records continue to influence lenders’ loan and credit decisions for that decade-long period. After 10 years, the bankruptcy will finally drop off your credit history if you have taken steps to proactively rebuild your credit responsibly.

Strategically Rebuilding Your Credit Post-Bankruptcy

The good news is you can start rebuilding your credit immediately following your Texas bankruptcy, instead of waiting 10 years. Strategically opening new responsible credit accounts, keeping balances very low, never missing payments on current debts, limiting credit inquiries, and letting time pass will cause your score to gradually improve. Counseling can help develop the optimal post-bankruptcy credit strategy.

While the negative credit impact of bankruptcy should never be taken lightly, for borrowers truly overwhelmed with debt, the credit score hit may be a necessary cost when weighed against the power bankruptcy has to eliminate debt and provide financial and mental relief. Seeking legal guidance is highly advisable to fully understand the credit implications before filing.

Contact a Boerne Bankruptcy Lawyer

Do not let the idea of your credit score dropping stop you from moving forward with bankruptcy. There are many ways you can strategically raise your credit score. Work alongside a Texas bankruptcy attorney to see if this is the right move for you. Call Law Offices of Chance M. McGhee at 210-342-3400 today for a free consultation and start your new journey.

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