How Does Bankruptcy Affect Your Credit Score?

You may be buried under credit card debt, recently separated, facing mounting medical bills or involved in a business that went bad. Whatever the reason, you now find yourself in a situation where there feels like no escape. Bankruptcy may be the best option for you to get back on your feet and regain control over your life.

If you’re considering bankruptcy, you probably have a lot of questions and concerns. One frequent area of concern is how bankruptcy will impact their future credit. Clients want to know, how long will the bankruptcy show up on my credit report? How will bankruptcy affect my credit score?

How long will a bankruptcy filing stay on my credit report?

The short answer is 10 years. A bankruptcy filing is a public record that can be listed on your credit reports for up to ten years under the Fair Credit Reporting Act.

What impact will bankruptcy have on my credit?

There is no one size fits all answer to this question. Often, a person’s credit is badly damaged due to things like past-due medical bills, repossessions, and delinquent credit card bills and the filing of bankruptcy will not have a major impact on their credit score. Sometimes, if a person has been keeping up with their debts and their credit score is relatively strong, then a bankruptcy filing will have a more significant impact on their credit score. However, even if you are current on your bills pre-bankruptcy you may have a high debt to income ratio which drags down your credit score.

When will my credit score start to improve?

Your score won’t go up right away, but you can start working on rebuilding your credit immediately after a bankruptcy.

Short Term Improvements
Your late payments and high credit balances will disappear from your credit report when your discharged debts are reported to the credit bureaus. In some cases, especially if your credit score is already low, this will give you a slight, immediate boost.

You will also see an improvement in your debt-to-credit ratio, which makes up 30% of your score. With your credit debts wiped clean, your debt will decrease while your available credit will increase, positively impacting your ratio and your overall score.

Long Term Improvements
By wiping the slate clean and starting over, you can begin to lay the foundation for new, healthy credit. Here are some ways you can build your credit back after a Chapter 7 or Chapter 13 Bankruptcy.

• Open a secured credit card with your bank. This card will have a small credit limit secured by a deposit. Using the card for purchases you know you can afford and paying it off every month will help rebuild your credit.
• Pay student loans or other unforgiven debt on time.
• Maintain car and house payments for secured assets you reaffirmed through the bankruptcy process.

Hopefully, the information in this post will help you make an informed decision about whether or not bankruptcy is a good choice for you. Below I discuss the two types of consumer bankruptcy that Andrea Henning Law can assist you with.

With Chapter 7, you will get a discharge of all your debts except student loans, child/spousal support, and most taxes. Once the eligible debts have been discharged, you will no longer have to pay them. In a Chapter 7 bankruptcy, you can get rid of credit card debt, medical debt, and debts from vehicle repossessions and foreclosures. In Chapter 7, the trustee liquidates assets not protected by the law, but many people who qualify for a Chapter 7 find that all of their assets are protected. We can help you determine what assets you will be able to keep and give you an idea of the process for your specific situation.

Like a Chapter 7 bankruptcy, Chapter 13 protects you from your creditors, but it also allows you to pay your debts over time while keeping your assets. A Chapter 13 can be a great way to manage debts for people who make too much money to qualify for a Chapter 7 bankruptcy or who have filed a Chapter 7 and received a discharge less than 8 years ago. A Chapter 13 bankruptcy can also help you catch up on a mortgage for a house that you want to keep.

In Chapter 13, you and your attorney will make a plan to repay your creditors in either 3 or 5 years (depending on your income and other circumstances). Your payment will be based on the money you have left after paying your necessary living expenses.

What is a bankruptcy attorney?

A bankruptcy attorney can help clients with financial problems understand their options and determine whether bankruptcy is a choice that would help them or if there are better options available. Once you begin the process of filing for chapter 7 or chapter 13 bankruptcy, your attorney will help you make decisions to protect your financial well-being, handle the paperwork and represent you in a meeting with the bankruptcy trustee. Through the entire process, our goal is to help relieve financial stress every step of the way, all with excellence, integrity, and compassion.

Are you drowning in debt? We can help get your life back on track; get in touch today.