How Bankruptcy Reform will affect Credit Reports and Credit Scores

Now that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is passed, it is a lot harder to wipe away your debt. At one time just about anyone could file Chapter 7 and wipe the slate clean. This new bill has a lot of debate. Some say it is prejudice against the consumer. Regardless of the merit of this passed bill in 2005, it makes it tougher these days to file Chapter 7 Bankruptcy. One of the major changes is if your income is greater than the state median income, your motion to file Chapter 7 will be dismissed and you will have to file Chapter 13 repayment plan for 5 years. With this new bill more people are being forced to file Chapter 13, as opposed to Chapter 7.

Differences between the two Bankruptcies:

Chapter 7 Bankruptcy- A chapter 7 bankruptcy basically dissolves all debts that legally qualify for this process. Typically most debts get discharged in this type of bankruptcy. Discharged in Bankruptcy terms mean all liabilities get erased. So in other words you are no longer legally required to pay back a unpaid debt included in the bankruptcy. On your credit report from file date for 10 yrs.

Chapter 13 – A chapter 13 is different than a Chapter 7 because the consumer must pay off debts over time. You pay these debts to a court appointed Trustee. This option is usually for individuals that have steady income. On your credit report from file date for 7 yrs.

Since Chapter 7 is no longer the easiest option for filing bankruptcy, you might consider letting your debts go to collection if you are in a pinch. You always can go back to the collection companies and negotiate a lesser balance agreement. The original creditor pretty much already wrote off the debt anyways. So these collections companies just bought the debt, and will settle for pennies on the dollar. This is just an option. It is better to let an obligation go to collection and settle on the debt once you are on your feet versus filing Chapter 7 or 13. We also know that there are situations where you need to file Bankruptcy.

So we believe that there will be less people filing Chapter 7 since it’s not available to everyone now. I am sure you can see how each bankruptcy could affect your credit differently. This new reform bill will force more people to be a little more responsible, and less likely to jump on the bankruptcy bandwagon. More people will also be forced to file Chapter 13 and pay back a portion of the debts. This option is less harsh on credit than Chapter 7. Regardless filing bankruptcy period will destroy your credit score and credit report for quite a while.

About the Author: Mike Clover is the owner of is the one of the most unique on-line resources for free credit score report, Internet identity theft software, secure credit cards, and a BlOG with a wealth of personal credit information. The information within this website is written by professionals that know about credit, and what determines ones credit worthiness.

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Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.