People in Mississippi who are struggling with debt might hesitate to file for bankruptcy because of certain myths they believe about bankruptcy. There are a number of misconceptions about filing for bankruptcy and what happens to a person’s credit afterward.
The main impact of a bankruptcy on a credit score is the bankruptcy itself. In other words, the score is unlikely to be mitigated by positive information on the credit report. The amount of debt discharged may affect the severity of the drop in credit score. Furthermore, debts that cannot be discharged, such as student loans, will remain on the report. However, it is important to remember that a bankruptcy eventually falls off the credit report. A Chapter 7 bankruptcy remains on the credit report for 10 years. All other information, including a Chapter 13 bankruptcy and things like liens and judgments discharged in bankruptcy, are removed from the report after seven years.
Even while the bankruptcy is still on the report, it is possible to improve the credit score significantly. It is possible to begin rebuilding credit with a secured credit card or a loan and by paying all bills on time. In the end, while bankruptcy represents a short-term hit on a person’s credit, getting free and clear of that debt may allow a person to rebuild a stronger credit record than before.
Another misconception people might have about bankruptcy is that they will lose all their assets. Even in a Chapter 7 bankruptcy, certain assets are exempt, but in a Chapter 13 bankruptcy, a person may be able to keep assets such as a home. Filing for bankruptcy can halt, at least temporarily, actions such as foreclosures, and the person works out a plan to pay creditors over three to five years. This plan must be approved by the court and is supervised by a bankruptcy trustee.