Effects Of Bankruptcy On Your Credit

Posted on: 8 January 2019


Before you rush into filing for bankruptcy, it is very important for you to take the time you need to fully understand what bankruptcy is, how it will help you, and the ways it could affect your credit. Bankruptcy will affect your credit, and the effects can last for years; however, what you do with your credit after bankruptcy will also have major effects on your credit.

Why bankruptcy affects credit

Bankruptcy offers a lot of benefits to those who file, including debt relief and the ability to keep a home that would otherwise be lost to foreclosure, but it also comes with some consequences. The main consequence is the posting on your credit report that you filed for bankruptcy. This is a trade-off you experience from filing, and there is nothing you can do to avoid this.

The length of time it remains on your credit report

When filing for bankruptcy, the court will instantly post the filing on your credit report, and it will stay on your report for a set number of years from the date the case closes. If you choose Chapter 7, the filing will remain for 10 years from the discharge date. If you choose Chapter 13, it will remain for seven years from the discharge date. Keep in mind, with Chapter 13, you will repay the debts you have over a period of three to five years, and the seven-year posting will not begin until you complete the plan. In other words, it could be 13 years before your Chapter 13 filing falls off your credit report from the time you file for it.

Your actions afterwards will play a big role

While you cannot get the bankruptcy posting removed from your credit report, you can make wise decisions that will cause your credit score to increase faster after filing for bankruptcy. For example, you could apply for a few credit cards shortly after your case closes. If you can get approved and use the credit cards wisely, it will cause your score to increase. Using them wisely involves paying the balances off in full every month. Secondly, you could apply for a car loan as a way of improving your credit, and this will make a big difference over time.

If you choose to do nothing with your credit after bankruptcy, your score will not improve very quickly, which means it will take a lot longer to have a decent credit score after filing.

Knowing and understanding these things can help you make the right decision with bankruptcy. If you have questions or need advice about your financial situation, visit a bankruptcy lawyer.