Is A Repossession Worse Than Bankruptcy? (Explained)

Money problems can happen to anyone. One minute, everything’s fine. The next, you’re dodging collection calls and wondering what to do about that car loan you just can’t keep up with.

At some point, you might start weighing your options – repossession or bankruptcy?

Neither feels great, but one might be easier to bounce back from than the other.

In this post, we’ll explain if a repossession is worse than bankruptcy in detail.

Is A Repossession Worse Than Bankruptcy?

No, a repossession is better than bankruptcy. A repossession usually affects just one item, like your car. Bankruptcy can affect everything, and it sticks around a lot longer.

Repossession means the lender takes back something you haven’t finished paying off. Most often, it’s a vehicle. They sell it to recover what you owe. If they don’t get enough, you might still owe the difference.

Bankruptcy, on the other hand, is a legal process and a lot more serious.

It helps clear or reorganize your debts, but it involves courts, paperwork, and a pretty big hit to your credit. And it sticks to your record for years.

Also Read: Debt Settlement vs Bankruptcy

Neither option is “good.” But one might be better depending on where you’re at financially.

6 Reasons Why Repossession Is Better Than Bankruptcy

Here’s why a repossession is NOT worse than bankruptcy:

Why Repossession Is Better Than Bankruptcy

#1. Less Damage To Your Credit

Your credit score takes a hit either way, but the impact is very different.

A repossession usually drops your score by 100-150 points and stays on your credit report for seven years.

Bankruptcy is a much bigger blow. Chapter 7 bankruptcy can sink your score by 200+ points and sticks around for ten years. Chapter 13 stays for seven years but the initial damage is more severe than a single repossession.

The recovery time is also different. You might see your credit score bounce back from a repossession in 2-3 years with good financial habits.

After bankruptcy, rebuilding can take 5+ years before lenders start trusting you again.

#2. You Avoid A Public Record

Did you know bankruptcy filings become public record?

Anyone can look them up. Your potential employers, landlords, business partners, or even nosy neighbors could discover your financial troubles with a simple search.

That’s pretty uncomfortable!

Repossessions stay between you and your lender. While the credit bureaus know about it, the general public doesn’t have easy access to this information.

Your financial struggles remain much more private.

Also Read: Is Bankruptcy Public Record in California?

#3. No Court Process

Bankruptcy means going to court, hiring an attorney, attending mandatory credit counseling, and dealing with a trustee who examines all your finances.

It’s time-consuming, stressful, and expensive.

Repossession doesn’t involve any of that. It’s handled directly with your lender.

It is still unpleasant, but the process is simpler and doesn’t involve hours digging through your bank statements and laying out your entire financial life before a judge.

#4. Easier To Recover Financially

After a repossession, your path to financial recovery starts immediately.

The damage is specific to one type of credit, and lenders know exactly what happened. Many people qualify for another auto loan within 1-2 years, albeit with higher interest rates initially.

As you rebuild, those rates improve.

With bankruptcy, everything gets pulled in. It affects your entire financial profile.

Lenders are more cautious with you for years, and getting back on solid ground – credit cards, loans, even rental applications—can take a lot more time.

#5. You Only Lose One Thing

Repossession usually means losing a single item, like your car.

Sure, losing your vehicle can be a serious hassle if it’s how you get to work or run errands. But at least you’re not losing everything.

Bankruptcy can be more invasive. Depending on your situation and the type of bankruptcy you file, you could be at risk of losing personal property, savings, or even your home.

It casts a wider net over your assets, while repossession is more limited to just what you stopped paying for.

Also Read: What Happens to Your Home After Bankruptcy?

#6. Fewer Long-Term Consequences

The ripple effects of bankruptcy extend far beyond your credit score. It can affect:

  • Job prospects (some employers check credit)
  • Housing applications
  • Insurance rates
  • Future borrowing ability

Repossession mainly impacts your ability to finance similar items in the future. Lenders for other products might note it but won’t necessarily deny you outright.

When Bankruptcy Might Be The Better Choice

When Bankruptcy Might Be The Better Choice

Even though repossession can be the easier road, it’s not the right move for everyone.

If you’re drowning in debt and behind on a lot of payments (not just one loan), bankruptcy might actually help. It can stop wage garnishments, pause foreclosure, and wipe out multiple debts all at once.

Some people also use Chapter 13 bankruptcy to reorganize what they owe and keep their car or house in the process.

It’s not a quick fix, and it definitely has consequences. But for people who are totally overwhelmed with bills and seeing no way out, it can offer a clean slate.

Bottom Line

Repossession and bankruptcy are both rough. But repossession is usually easier to recover from, especially if you’re only struggling with one loan. It doesn’t drag down your credit for a decade, and it keeps you out of the courtroom.

That said, if you’ve got a mountain of debt and no realistic way to pay it back, bankruptcy could give you some breathing room.

Sometimes letting go of one thing now saves you from losing everything later.

FAQs

How Bad Is Voluntary Repossession?

Voluntary repossession is still a repossession. The lender will report it to the credit bureaus, and it will hurt your credit score. You’ll still probably owe money if they sell it for less than the loan.

That’s called a “deficiency balance,” and they can still come after you for it.

But by giving the item back on your own (instead of them sending a repo company), you might avoid extra fees and drama.

Can I File Chapter 13 After My Car Has Been Repossessed?

Yes, if the lender hasn’t sold the car yet, you might be able to file Chapter 13 and get the car back. You’d have to start making payments under a court-approved plan, though.

If they’ve already sold it, it’s usually too late to recover it, but you can still include the leftover debt in your Chapter 13 case. That might help reduce what you owe or stretch it out over time.

Can I File For Bankruptcy While A Civil Lawsuit Is Filed? (Solved)

Getting hit with a civil lawsuit while struggling with debt can feel overwhelming. You might be wondering if filing for bankruptcy can help stop the civil lawsuit—or at least slow it down.

The short answer is yes. Bankruptcy can put a hold on most civil lawsuits and sometimes wipe out the debt behind them.

This post breaks down how bankruptcy affects active lawsuits, what types of cases get paused, what doesn’t, and what to expect after you file.

If you’re dealing with both debt and legal trouble, here’s what you need to know.

Can I File For Bankruptcy While A Civil Lawsuit Is Filed?

Yes, you can file for bankruptcy even if a civil lawsuit has already been filed against you. Filing triggers an automatic stay, which immediately pauses most civil lawsuits.

This legal protection stops creditors and plaintiffs from moving forward with collection efforts, including ongoing litigation.

If the lawsuit is about a debt (like unpaid bills or personal injury related) the bankruptcy court may take over and discharge the debt, depending on the case and the chapter filed.

The lawsuit doesn’t get erased, but it usually can’t proceed while the bankruptcy is active.

Filing bankruptcy during a civil lawsuit can protect you from a judgment, wage garnishment, or property liens.

It’s a strategic move for many people facing both legal action and financial pressure.

Filing For Bankruptcy While A Civil Lawsuit Is Filed

What Kinds Of Civil Lawsuits Are Affected?

Bankruptcy hits the pause button on most lawsuits that are about money. Here are a few common examples where the automatic stay can step in:

  • Lawsuits over unpaid credit cards or loans
  • Debt collection lawsuits (from hospitals, landlords, etc.)
  • Breach of contract cases, like if a company claims you owe them money for something that didn’t work out

If the lawsuit is based on you owing someone money, chances are bankruptcy will affect it.

The court might even decide that the debt at the heart of the lawsuit gets wiped out entirely. It depends on the kind of debt and what chapter of bankruptcy you file.

Also Read: Can Personal Loans Be Relieved in a Bankruptcy?

Civil Lawsuits That Bankruptcy Won’t Stop

Now, let’s be clear—bankruptcy doesn’t freeze everything.

There are some lawsuits bankruptcy just won’t touch. These kinds of cases can move forward even after you file. The court doesn’t consider them regular debt disputes, so they’re not covered by the automatic stay.

These usually aren’t about money in the same way.

For example, if someone is suing you over child support or alimony, those cases move forward. Same goes for criminal charges or anything tied to criminal activity. Even certain divorce-related cases will keep going, especially if they’re not about splitting debt.

So if you’re dealing with a lawsuit that’s more about custody, support, or criminal penalties, bankruptcy won’t help much there.

Why Timing Matters

Timing can seriously affect how helpful bankruptcy will be.

If the lawsuit against you is still in the early stages, bankruptcy gives you a solid advantage. That automatic stay hits before things get worse. It can stop a judgment from being entered against you.

That’s huge, because once a judgment is in place, it can turn into wage garnishment, liens, or other things that are harder to undo.

On the other hand, if you wait too long and a judgment has already been made, bankruptcy might still help—but it’s messier.

Some debts tied to judgments can still be discharged. Others can’t.

The earlier you act, the more options you’ll likely have.

What Happens to the Civil Lawsuit After You File

Also Read: What Debts Can I File Bankruptcy on

What Happens To The Civil Lawsuit After You File?

Once you file and the automatic stay goes into effect, the court handling the lawsuit is notified.

In most cases, everything pauses right there. If the debt involved in the lawsuit is something that can be discharged through bankruptcy, the lawsuit may never start back up.

But sometimes, the other party will ask the bankruptcy court to lift the automatic stay. That’s called a “motion for relief from stay.” If the judge says yes, the lawsuit can move forward. If the judge says no, the case stays frozen.

It really depends on your debt, the facts of the case, and how everything is presented in court.

But most of the time, the person suing you (the creditor) might just stop the lawsuit altogether.

Talk To A Bankruptcy Attorney Before You File

This is one of those situations where talking to a lawyer makes a huge difference.

A bankruptcy attorney can look at your lawsuit, figure out if it qualifies for discharge, and help time your filing just right. If you go it alone, you might miss something that ends up costing you more down the road.

Plus, there’s paperwork, deadlines, and rules you really don’t want to mess up.

A lawyer can help you avoid the traps and make sure you’re protected as much as possible.

Also Read: How Much Does a Debt Settlement Lawyer Cost?

Bottom Line

Yes, you can file for bankruptcy even if there’s a civil lawsuit already filed against you.

In fact, it might be one of the smartest moves you can make if the lawsuit is over a debt you can’t pay. The automatic stay can pause the lawsuit, stop collection efforts, and give you a shot at wiping the debt clean.

But not always. Some lawsuits survive. Some debts don’t go away. And timing is everything.

So talk to a bankruptcy attorney and get clear on your options before things go further.

FAQs

Does Chapter 11 Protect From Lawsuit?

Yes, Chapter 11 triggers an automatic stay, which temporarily stops most lawsuits, including those trying to collect money. But criminal cases or lawsuits involving fraud might still move forward or be allowed to continue if the court lifts the stay.

Can You Sue Someone Who Has Filed Chapter 7?

You can file a lawsuit, but the automatic stay will likely pause it right away. If your case involves debts that can’t be discharged (like fraud, intentional harm, or certain personal injury claims) you may be allowed to move forward, but only after the bankruptcy court gives permission.

Who Pays for Bankruptcies in Michigan?

The US Bankruptcy Code is a set of complex laws covering discharge of debt, the role of the bankruptcy trustee, administration of the case, and rights of filers. It’s confusing to grasp how costs work, so you might wonder: Who pays for bankruptcies in Michigan?

In Michigan, the person filing for bankruptcy is responsible for court fees, credit counseling, and attorney costs. In Chapter 13, payments are made through a repayment plan, while Chapter 7 requires upfront costs. Some filers may qualify for fee waivers or payment plans.

Continue reading “Who Pays for Bankruptcies in Michigan?”

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Answers to FAQs About Who Pays for Bankruptcies in Michigan

What is the average monthly payment for Chapter 13?
The average monthly payment for a Chapter 13 bankruptcy plan in Michigan varies based on income, debts, and expenses. Generally, payments range from $300 to $1,000 per month, but they can be higher for those with significant secured debts, such as a mortgage or car loan. The payment amount is calculated based on disposable income, priority debts, and secured debt obligations. The court must approve the plan, so that creditors receive fair repayment over three to five years.
What disqualifies you from filing bankruptcies?
Several factors can disqualify someone from filing for bankruptcy in Michigan. For Chapter 7, failing the means test—which measures income against state median levels—can make someone ineligible. For Chapter 13, having too much secured or unsecured debt can prevent filing.

Additionally, previous bankruptcy filings within certain timeframes may disqualify an applicant. Fraud, such as hiding assets or submitting false information, can also result in a case being dismissed or denied.
What income is too high for Chapter 7?
Income eligibility for Chapter 7 bankruptcy in Michigan is determined by the means test, which compares household income to the state median. As of 2024, the income limit for a single filer is approximately $64,000, but it increases with household size. If income exceeds the limit, filers may still qualify by deducting allowable expenses. Those who do not pass the means test may need to consider Chapter 13 instead, which involves a structured repayment plan.
Do taxpayers pay for personal bankruptcies?
No, taxpayers do not directly pay for personal bankruptcies in Michigan or anywhere in the U.S. The bankruptcy system is funded through court filing fees, attorney fees, and payments made by debtors. Trustees, who are tasked with managing bankruptcy cases, are compensated from these fees. While some costs are absorbed by creditors in the form of unpaid debts, the general public does not bear the financial burden of individual bankruptcy filings.

How to File Bankruptcy and Keep Your Car​​ in Michigan

When you rely on your vehicle for employment, family, and personal reasons, it’s hard to imagine the extensive consequences if you lose it in bankruptcy. To avoid or mitigate the harsh consequences, you need to know how to file bankruptcy and keep your car​​ in Michigan.

To file bankruptcy and keep your car in Michigan, you must use exemptions to protect its equity. In Chapter 7, stay within exemption limits or reaffirm the loan. In Chapter 13, include payments in a repayment plan. Choosing the right bankruptcy type ensures you can keep your vehicle.

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FAQs About Filing Bankruptcy and Keeping Your Car in Michigan

Can I declare bankruptcy and keep my car?
Yes, you can file for bankruptcy and keep your car in Michigan under certain conditions. If you file for Chapter 7, your car’s equity must fall within the Michigan or federal motor vehicle exemption limits, and you must stay current on payments if you have a loan. In Chapter 13, you can include missed car payments in a repayment plan to prevent repossession. Reaffirming the loan or redeeming the vehicle may also allow you to keep it.
What assets are exempt from Chapter 7 in Michigan?
In a Michigan Chapter 7 bankruptcy, certain assets are protected from liquidation under exemption laws. Exempt assets include up to $4,250 in equity for a vehicle ($9,525 for elderly or disabled individuals), homestead equity up to $46,125, personal property, tools of the trade, retirement accounts, and some wages. Federal exemptions are also an option, offering different limits. Choosing the right exemption set is crucial to protecting property, including your car, from being sold by the bankruptcy trustee.
What are the risks of keeping my car during bankruptcy?
The biggest risk of keeping a car during bankruptcy is repossession if payments are not current. In Chapter 7, if the car's equity exceeds exemption limits or the filer cannot afford loan payments, the lender or trustee may take the vehicle. In Chapter 13, failing to make plan payments can result in repossession. Additionally, reaffirming a car loan in Chapter 7 means personal liability for the debt remains, even if financial struggles continue.
Is it worth it to fight to keep my car in bankruptcy?
Yes, keeping a car in bankruptcy is often worth the effort if it is necessary for work, family obligations, or daily transportation. If the car loan is affordable and its equity falls within exemption limits, retaining the vehicle can provide long-term stability. However, if payments are unaffordable, surrendering the car and discharging the debt may be a better financial decision. Evaluating your overall debt situation and repayment ability is essential before deciding.

How Much Does Chapter 13 Bankruptcy Cost in Michigan?

Because you’re already facing financial challenges when considering bankruptcy, it’s understandable that you’ll have concerns about expenses. Many filers ask the question: How much does Chapter 13 bankruptcy cost in Michigan?

Filing for Chapter 13 bankruptcy in Michigan costs $313 in court fees. Additional expenses include credit counseling fees, typically $20-$50, and attorney fees, which average between $3,000 and $4,500. These costs vary based on case complexity and attorney experience.

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FAQs About Chapter 13 Bankruptcy Costs in Michigan

How much does it cost to file for Chapter 13 bankruptcy in Michigan?
Filing for Chapter 13 bankruptcy in Michigan involves a court filing fee of $313. This fee is required at the time of filing the bankruptcy petition. In some cases, the court may allow the fee to be paid in installments. Additionally, there are costs for mandatory credit counseling and attorney fees, which can vary based on the complexity of the case and the attorney's experience. It's important to budget for these expenses when considering Chapter 13 bankruptcy.
How much debt is needed to file Chapter 13?
There is no minimum debt requirement to file for Chapter 13 bankruptcy in Michigan. However, there are maximum debt limits. As of 2023, unsecured debts must be less than $465,275, and secured debts must be less than $1,395,875. These limits are adjusted periodically. Chapter 13 is designed for individuals with a regular income who can afford to make monthly payments, so the decision to file should be based on the ability to adhere to a repayment plan rather than a specific debt amount.
How long does it take for Chapter 13 to be approved?
The approval process for Chapter 13 bankruptcy in Michigan typically takes between 30 to 60 days after filing. This period includes the time needed for the court to review the proposed repayment plan and for creditors to raise any objections. Once the plan is confirmed by the court, the debtor begins making payments according to the plan's terms. The entire Chapter 13 process, from filing to discharge, usually spans three to five years, depending on the repayment plan's duration.
What is the downside to filing Chapter 13?
One downside to filing Chapter 13 bankruptcy in Michigan is the impact on your credit report, as it remains for seven years. Additionally, the repayment plan requires a long-term commitment, typically lasting three to five years, during which the debtor must adhere to strict budgetary constraints. Failure to make payments can result in the dismissal of the case. Furthermore, while Chapter 13 allows for debt reorganization, it does not eliminate all debts, such as certain taxes and student loans, which must still be paid.

Can Personal Loans Be Relieved in a Michigan Bankruptcy?

The bankruptcy process aims to discharge certain types of debts, so there’s one common question for may debtors: Can personal loans be relieved in a Michigan bankruptcy?

Yes, personal loans can be relieved in a Michigan bankruptcy if they are unsecured. Chapter 7 bankruptcy often discharges personal loans entirely, while Chapter 13 allows repayment over time, with remaining balances potentially discharged. Legal guidance ensures the best outcome.

As a Michigan bankruptcy lawyer with an extensive background in bankruptcy law, I’ve advocated for many debtors seeking to understand how personal loans work in Chapter 7 and Chapter 13. Here, I’ll cover discharge of unsecured debts, what cannot be eliminated, and the steps in a bankruptcy case.

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FAQs About Personal Loans and Bankruptcy in Michigan

Can a personal loan be written off in bankruptcy?
Yes, personal loans can often be written off in bankruptcy if they are unsecured. In Michigan, Chapter 7 bankruptcy typically discharges personal loans entirely, provided they meet the eligibility criteria. Under Chapter 13, these loans may be included in a repayment plan, with any remaining balance potentially discharged after the plan's completion. However, personal loans tied to fraudulent activity may not qualify for discharge.
How Do I File a Bankruptcy Case?
Filing for bankruptcy in Michigan involves several steps. The process begins with credit counseling from an approved agency. Next, individuals complete detailed financial documentation, including income, assets, debts, and expenses. Filing the bankruptcy petition with the court initiates the case.

Michigan residents must also attend a meeting of creditors, where the trustee reviews the case. Accurate preparation and adherence to legal requirements are critical for a successful outcome.
Does Michigan have a debt relief program?
Michigan does not have a state-specific debt relief program, but residents can access various federal programs and bankruptcy options. Chapter 7 and Chapter 13 bankruptcy are common choices for debt relief in Michigan.

Additionally, nonprofits and credit counseling agencies offer programs to negotiate with creditors, consolidate debt, or create manageable repayment plans. These alternatives provide Michigan residents with pathways to regain financial stability while addressing their unique circumstances.
What loans are not forgiven in bankruptcy?
Certain loans and debts are not forgiven in bankruptcy. In Michigan, debts such as student loans, child support, alimony, and certain tax debts typically cannot be discharged. Secured debts, like car loans or mortgages, may require surrendering the collateral if payments are not made. Loans obtained through fraudulent means are also excluded from discharge.

Understanding which obligations remain after bankruptcy helps individuals make informed decisions about their financial recovery.
Is it better to settle debt or bankruptcy?
The choice between settling debt and filing for bankruptcy depends on individual circumstances. Debt settlement can reduce the total amount owed but may still harm credit scores and incur fees. A creditor might require a lump sum payment that many debtors cannot afford. Bankruptcy offers broader relief by discharging eligible debts but has a longer-lasting credit impact.

In Michigan, individuals with overwhelming debts or multiple creditors often find bankruptcy to be a more comprehensive solution than settling or another debt management plan. Consulting a bankruptcy attorney helps determine the best path forward.

What is Cramdown in Chapter 13 Bankruptcy in Michigan?

Terminology in the legal world can sometimes seem odd, and a Chapter 13 bankruptcy cram down certainly qualifies. So, what is cramdown in Chapter 13 bankruptcy in Michigan?

In a Michigan Chapter 13 bankruptcy, a “cramdown” allows you to reduce the balance of a secured debt (like a car loan or investment property mortgage) to the current value of the collateral, potentially leading to lower payments and interest rates. 

Having practiced as a Michigan Chapter 13 bankruptcy attorney for over two decades, I’ve worked on countless cases to leverage cram down for the benefit of clients. In this article, I’ll review what cramdown means, the impact on secured loans, and the steps in the bankruptcy process.

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FAQs About Cramdown in Chapter 13 Bankruptcy

What is a Chapter 13 cramdown?
A Chapter 13 cramdown is a legal process that allows debtors to reduce the amount owed on certain secured debts to the current market value of the collateral. For example, if you owe more on a car loan than the car is worth, the loan balance can be reduced to match the vehicle's value.

The remaining unsecured portion of the debt may be discharged at the end of the repayment plan. This process is available only under specific conditions and applies to depreciated assets.
What is the cram down rule in bankruptcy?
The cram down rule in bankruptcy permits debtors to adjust the terms of secured debts under a court-approved repayment plan. This typically involves reducing the loan balance to the value of the collateral, lowering the interest rate, or extending repayment terms.

The rule primarily applies in Chapter 13 bankruptcy cases and helps individuals manage debts tied to depreciating assets. Certain exceptions, such as loans on primary residences, limit its application.
What is the 910 day rule for cramdowns?
The 910-day rule prevents car loan cramdown for vehicles purchased within 910 days (approximately two and a half years) of filing for bankruptcy. Under this rule, the debtor must pay the full balance of the loan through their Chapter 13 repayment plan, regardless of the car’s current market value. This rule was established to protect lenders from significant losses on newer loans and leads to fair treatment in bankruptcy cases.
What is the difference between cram up and cram down?
A "cram down" reduces the amount owed on secured debts to the collateral’s value, benefiting debtors by lowering their financial obligations. Conversely, a "cram up" involves debtors restructuring payment terms to pay the full debt balance, often at more favorable terms such as reduced interest rates.

While cramdowns are more common, cram ups may be used when debtors seek to retain assets without reducing the principal owed. Both processes require court approval under bankruptcy law.
What liens can be crammed down in Chapter 13?
In Chapter 13 bankruptcy, certain liens on secured debts can be crammed down, meaning the loan balance is reduced to the collateral’s current market value. Examples include vehicle loans (if the car was purchased over 910 days before filing), rental property mortgages, and loans secured by furniture or equipment.

However, primary residence mortgages cannot typically be crammed down. The remaining unsecured portion of the debt may be discharged after completing the repayment plan, providing significant financial relief to debtors with depreciated assets.

Can I File Bankruptcy While in the Military?

If you’re serving in the armed forces and facing financial difficulties, you may be wondering: Can I file for bankruptcy while in the military?

Yes, military personnel can file for bankruptcy just like civilians. However, service members should consider unique factors such as potential impacts on security clearances and military career standing before proceeding.

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What Happens When a Married Couple Files for Bankruptcy in California?

If you and your spouse are struggling with debt, you may be wondering: What happens when a married couple files for bankruptcy in California?

When a married couple in California files for bankruptcy, all community property—assets and debts acquired during the marriage—becomes part of the bankruptcy estate. In most cases, eligible debts are discharged, offering financial relief.

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How Does Bankruptcy Affect My Credit Score in California?

If there is one aspect of bankruptcy that many debtors focus on when considering their options, it is the hit to their credit report that seems the most daunting. Many people believe that filing Chapter 7 or Chapter 13 bankruptcy will be devastating to their credit, ruining any chances for a financial future. You may be wondering: How Does Bankruptcy Affect My Credit Score?

Filing for bankruptcy in California, or anywhere, will severely impact your credit score, potentially dropping it by hundreds of points, and a bankruptcy can stay on your credit report for 7-10 years depending on the type of bankruptcy. 

 

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