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The truth about bankruptcy and credit

Massachusetts residents can use the bankruptcy process to find debt relief and get a fresh financial start. However, they should be aware of exactly how bankruptcy can affect their credit.

Even if someone has a good payment history before filing for bankruptcy, their credit score will still be impacted. The amount of time the bankruptcy has been on one's credit report will also affect the score.

Individuals who file for Chapter 7 bankruptcy will have a bankruptcy listing on their credit report for 10 years. For those who file other types of bankruptcy, such as Chapter 13, the reference will be on their credit report for seven years. Any tax liens, third-party collection debts and judgements that are discharged with the bankruptcy will also remain for seven years.

People should expect to have a significantly lower credit score after a bankruptcy. However, they can begin restoring their score almost immediately by obtaining new credit to counter the negative listings on the report. Individuals should focus on making timely payments for all old and new debts and limiting credit card balances to no more than 30 percent utilization.

Another important thing to know about bankruptcy is that while it can help erase past debts, the accounts will still remain on the credit report. The bankruptcy-related accounts will also continue to impact one's credit rating for seven to 10 years afterward.

Individuals who are overwhelmed by credit card debt, medical bills and other financial challenges may speak with a bankruptcy attorney about their legal options. Depending on a client's debts and income, the lawyer could recommend Chapter 7 or Chapter 13 bankruptcy to stop creditor harassment and high interest rates.

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