Bankruptcy Facts - The Effects of Chapter 7 and Chapter 13 Bankruptcy on Consumer Credit

Aug. 18, 2010 - PRLog -- Consumers' debts are on a all time high and there has been a record number of people filing for bankruptcy. Although, bankruptcy is considered as the last resort option for personal debt reduction, consumers are confused as to, Is Chapter 7 or Chapter 13 a better option? Although, both have their negative effects on the consumer's credit score. The laws differentiate between these two sections of bankruptcy.

Bankruptcy has a long term negative effect on your credit report and it stays as long as 10 years you're your credit report and can be a hindrance in many of your property related and money related issues. Chapter 7 is considered as a straight bankruptcy since it can discharge all your personal debts at once. Chapter 7 is normally is normally reported on your credit score for 10 years: the reason being it does not inculcate any sort of repayment program to creditors and all the outstanding balance is paid off at once. However chapter 13 carries much less bad reputation because it involves restructuring and negotiating the debt and since ultimately the debt is paid off it affects the credit report for a lesser 7 years.

Once a debtor has been discharged, he cannot be forced to pay any remaining debts. Although it does not entirely save the credit report because it is mentioned that the consumer paid lesser amount but still it is much better than having "not paid" written on the card. Bankruptcy is never considered a feasible option for any consumer because of its after effects. Still a credit report with bankruptcy written all over it is a kind of warning sign for future lenders that their money might not be paid back in full.

Debt settlement is a legitimate alternative to filing bankruptcy. If consumers are experiencing a financial hardship and have at least $10k in unsecured debt then debt settlement can be a legitimate way to eliminate up to 70% of that balance.

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