How Will Filing Bankruptcy Affect My Credit?
Joshua A. Nesser • May 20, 2020
One of the biggest questions people have when they are thinking about filing bankruptcy is what affect the filing will have on their credit. While a bankruptcy will have a significant negative impact on your credit score, it does not mean that you will never again be able to open a credit card, rent an apartment, or even buy a car or a house.
Filing bankruptcy certainly will cause your credit score to drop, in some cases by 100 to 200 points. The size of the decrease depends on the type of bankruptcy you file, the amount of debt discharged in your bankruptcy, and the type of bankruptcy you file. However, it is worth keeping in mind that in many cases, not filing bankruptcy and allowing your debts to go longer and longer past due will have just as much of an impact, if not a greater one.
A Chapter 7 bankruptcy, in which most if not all of your debts will be discharged, has the most severe impact, as it causes lenders to see you as a high credit risk. Most people who file Chapter 7 bankruptcy will have to wait at least two to four years after the bankruptcy is discharged before they can qualify for a mortgage. On the other hand, because your debts are restructured and actually repaid in a Chapter 13 bankruptcy, this is not so much of a red flag to creditors and will have a lesser impact on your credit score. Lenders generally require that one to two years pass from the date a Chapter 13 bankruptcy is discharged before a borrower can qualify for a mortgage.
Creditors will be aware of a bankruptcy filing for a number of years even after the bankruptcy is discharged. A Chapter 7 bankruptcy can remain on your credit report for up to 10 years, while a Chapter 13 filing will drop off the report after 7 years. However, the negative impact of a bankruptcy on your credit will lessen over time, even while it is still on your credit report. This is especially the case if following your bankruptcy, you implement good credit habits, meaning that you establish new credit within your financial means and pay your bills on time. It is also a good idea to monitor your credit to ensure the information being reported to the major credit bureaus is accurate. By taking these steps, you can begin rebuilding your credit score and eventually mitigate the impact of the bankruptcy filing from your credit history.
If you are thinking about filing bankruptcy and have questions about the potential impact on your credit, please do not hesitate to call our office. Our office has been successful in helping consumers with collection problems for over 28 years. If you have a debt or tax problem please contact me at (847) 705-7555 or jnesser@lavellelaw.com
and find out how we can help you. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
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