I filed for bankruptcy. How will this impact my credit score?

  • I filed for bankruptcy. How will this impact my credit score?
13 Oct, 2023
Daniel Cohen
11 min
243
what does filing for bankruptcy do to your credit score

Filing for bankruptcy has several negative effects your credit score

A bankruptcy will hit your credit report with negative effects, but it can be turned around.

Bankruptcy is a legal process in which a borrower formally declares that they cannot meet their debt obligations, and the law gives them some respite from some or all of their debts. From a financial point of view, it is typically deemed a last resort for a person to erase their debts.

Let’s discuss the effect that filing for bankruptcy will have on your credit score:

What happens to credit scores when filing for bankruptcy?

Generally speaking, filing for bankruptcy reduces your credit score.

To be more specific, the degree of the negative impact that filing for bankruptcy can have on your credit score is dependent on how good your credit score was before you filed for bankruptcy.

If you had a good credit score and filed for bankruptcy, your score will take a notable dive. However, if your score was already low, filing for bankruptcy will reduce your score but won’t do much damage.

The reason filing for bankruptcy significantly affects credit scores is because of it indicates that you aren’t able to fully pay off your debts. This makes you a high risk to any potential creditor. Of course, your payment history is the most important factor in determining your credit score. it accounts for 35% of the score, according to the FICO model.

Keep in mind that filing for Chapter 7 bankruptcy, which wipes all your debts, will remain on your credit report for 10 years from the original filing date. However, filing for Chapter 13 bankruptcy will stay your report for seven years. This type of bankruptcy doesn’t create a fresh start. Instead, it organizes your debts into a payment plan over the course of three and five years.

Either way, bankruptcies will appear on your credit report, reduce your credit score, and be viewed by potential lenders.

Can bankruptcy have a positive effect on my credit score in any way?

Well, the answer is “yes”. However, this won’t happen overnight.

Bankruptcy can play a remedial role and have a positive effect on your credit score. This is because it can help you hop back on track to better credit if you’re far behind on your payments.

Because bankruptcy extinguishes many debts and provides filers with a better beginning, financially speaking. They can now make payments on time since there is a lighter burden. This will give them a better shot at rebuilding their credit score.

In a situation where you choose not to file for bankruptcy and keep delaying payments, your debt-to-income ratio will only keep growing. Raising a low credit score will be practically impossible.

Are you considering filing for bankruptcy? Are you worried about your credit score? It’s imperative to discuss with experts in the field of consumer protection, such as the Consumer Attorneys team. We’d be happy to hear from you

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About the author
Daniel Cohen
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Daniel Cohen is a Founding Partner of Consumer Attorneys and a co-chair of Consumer Finance Litigation practice. Since 2017, he is a member of the National Association of Consumer Advocates and the National Consumer Law Center. Mr. Cohen is a nationally-recognized practitioner of consumer protection law. He has a wealth of proven legal experience in the US in: collective claims, representing visually impaired people who believe their rights under the Americans with Disabilities Act have been violated in both the physical and digital environments, corporate governance and dispute resolution. Read more

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