How Bankruptcy and Debt Settlement May Affect You

Published: Mar 25, 2021

Individual using credit and wondering how bankruptcy or debt settlement may affect them

You may be considering bankruptcy or debt settlement, but wonder how they may affect you negatively. While Chapter 7 bankruptcy is a common option, you will find pros and cons and may also be searching for bankruptcy alternatives.

Or, maybe you have a small business and have been looking for a small business credit card and have not been making the strides needed to get the credit needed to continue to run efficiently. You now are looking at alternatives.

Wherever you are, sometimes financial hardships arise, which is totally normal, but down the road, there are financial management tips to help prevent this from happening. If you notice that your debt has risen to a level where it’s difficult to manage or when you’re in some sort of financial woe, then you should opt for Debt Settlement. The majority of individuals that enroll in a debt settlement program already know that it’s a sort of debt relief. As such, they have the understanding that it’ll impact their credit score negatively. However, they hardly know the extent of the impact.

Debt settlement is not a viable option for individuals that are looking for a way to hurriedly exit debt. But it’s good for individuals looking for a way to avoid filing for a bankruptcy discharge, and they know that it’ll negatively affect their credit score. However, sometimes bankruptcy may be the best option. If this is the case exploring a chapter 13 calculator or exploring the pros and cons of bankruptcy may be a good idea. If you are at all worried about losing your home with bankruptcy and you’re asking yourself, can I file bankruptcy and keep my home, then check out some options that are available for you. Whether debt settlement is a good option for you or not is totally dependent on your personal financial status.

As you read this article, we’ll let you know the instances where debt settlement can affect your credit score and how you and Ascend can help you reduce the effects. Before agreeing to debt settlement, we’ll advise that you read about debt settlement pros and cons and check whether the debt relief company is legitimate. 


How does your Credit Score work?

Since the ultimate aim of writing this article is to know how debt settlement impacts your credit score, I won’t delve into the intrinsic details of how credit score works. However, it is imperative you know that lenders use your credit score to calculate the chances of you paying a loan or credit card on time. The credit score is determined by your credit history. And this score ranges from 300 to 850.


How debt settlement impacts credit score

Navan Travel

The extent of the impact that debt settlement will have on your credit score depends on your starting credit score. If you have a credit score of 730, it could drop sharply to 535, a score of 630 may drop to 540, and a score of 500 may reduce to 470. It is all based on the FICO score simulations. Also, you should know that the Details of your Debt Settlement agreement will remain on your credit report for seven years.

The impact that debt settlement will have on your credit score depends on the following:

· Your credit’s current condition: Debt settlement will have a much greater impact on a credit score that is in good standing, as against one that is already low.

· Reporting practices of your creditors: Some creditors have a habit of not reporting, while some only report to a bureau. This will have an impact on how debt settlement will impact the credit score.

· The size of debt you’re settling: The bigger the balance, the bigger the impact it’ll have on your credit score and vice versa.

· Account Status on the Credit Report: You can see a notation called Paid-settled. That is much better than “Charge-Off,” although it doesn’t look as awesome as “Paid in Full.”

How Chapter 7 and Chapter 13 bankruptcy impacts your credit report

There are two main types of consumer bankruptcy in the United States: Chapter 7 and Chapter 13. Each bankruptcy affects your credit report differently. For example, in Chapter 7, your credit report would be affected for 10 years. In Chapter 13, your credit report would be affected for 7 years. For both Chapter 7 or Chapter 13 bankruptcy, you may decide that a Chapter 13 calculator can help you estimate bankruptcy qualification and Chapter 13 plan payment.