Bankruptcy is claimed by an individual or by an organization when they fail to pay back their loans. Bankruptcy can be either voluntary either involuntary. Involuntary bankruptcy is usually filed by the creditors. This is done in order to get a refund towards the credits given by them. Voluntary bankruptcy is filed by the debtor in order to prevent creditors collecting the loan.

Bankruptcy can be filed by an individual or an organization once they satisfy certain legal requirements . The debtor can file bankruptcy either under chapter 7 or under chapter 13. Bankruptcy filed under chapter 7 immediately exempts the debtor from all the debts owed by them toward the creditors. If the debtor has a continuous or a steady source of income they may file bankruptcy under chapter 13 which allows them to repay a negotiated credit or loan amount.

Bankruptcy certainly prevents the creditors from collecting the debt from the debtor, however it has a devastating effect on one\’s credit record. A bankruptcy report lasts for a long term and makes it almost impossible for the debtor to obtain any other loan or credit from any other financial institution. Bankruptcy not only has a negative impact on the credit score but also tarnishes one\’s image and completely destroys the credit worthiness.

Bankruptcy can have a negative effect of the credit scores. Once bankruptcy is declared the scores drop by 100 points and this effect may last until 10 years if proper steps are not taken to improve the credit report. The low credit score along with bankruptcy report makes the debtor a financial liability in the eyes of financial establishments.

One can try to rebuild their credit report in order to improve their credit scores. Instead of waiting for a period of 10 years for the bankruptcy entry to be completely cleared off from the credit report one can try various legal actions to correct their credit report that will make a big difference in the credit scores enabling the individual or the organization to be eligible for loans or other line of credits.

The first and foremost thing to do in order to improve credit report is to go through the bankruptcy report completely. If there is any report that is falsely entered, then this can be challenged legally by the provisions of FRCA or the Fair Credit Reporting Act. This allows the Creditors and Credit bureaus to investigate the report and to permanently delete any report that is found to have entered without any proof.

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