How Bankruptcy Affects Your Credit

Filing for bankruptcy is not a decision that should be made lightly. It can have a negative impact on your financial health for years after the fact. While bankruptcy does not permanently have to destroy your credit, it can affect your ability to obtain loans, credit, and even some jobs while it appears in your credit report.

It can take up to 10 years before a bankruptcy stops showing up on your credit report. However, the good news is that the impact of filing for bankruptcy tends to lessen over time. Typically, Chapter 11 and 7 bankruptcies remain on your credit report for up to 10 years, while Chapter 13 bankruptcies remain for up to seven. Even though bankruptcy is damaging to a credit score, the impact on financial well-being can vary considerably from person to person. Someone who typically has had a high credit score will not experience as much fallout as someone who had a low score prior to filing for bankruptcy. Someone who has fewer accounts included in their bankruptcy filing also will not experience as much of an impact as someone who has a large number.

It is important to carefully consider different options and factors before making the decision to file for bankruptcy. If you do ultimately decide that filing is the right decision for your situation, there are some steps you can take before and after you file to minimize the impact it has on your credit score and help repair the damage.

What to Do Before You File for Bankruptcy

Consider consulting a credit counselor before filing for bankruptcy. Non-profit debt counseling services can serve as an alternative to bankruptcy because they sometimes help set up a debt repayment plan with your creditors.

Negotiate with your creditors. Your creditors may be willing to work with you to develop a payment plan that will help you pay off your debts a little easier.

Remember that bankruptcies become part of the public record. This means that anyone can access information about your personal finances after you file for bankruptcy. Those who are concerned about privacy need to weigh this carefully before deciding to file.

Keep in mind that it may be more difficult for you to obtain financing for a car, home, business, or other asset after you file for bankruptcy. If you do qualify for loans or credit after filing, it is likely that you will have to pay higher interest rates and larger down payments.

Be prepared to spend some money. You will have to pay filing fees.

Consider hiring an attorney to help you with your case. While it is possible to file bankruptcy on your own, you run the risk of losing rights and property. An attorney can help you navigate the system and help protect your assets and interests.

Obtain a copy of your credit report from all the major credit-reporting agencies (Experian, Equifax, and TransUnion) to make sure that the information in your report is accurate. Be sure to dispute inaccurate items so that they are corrected before you file for bankruptcy.

What to Do After You File for Bankruptcy

Obtain a copy of your credit report after you file for bankruptcy to make sure that only accounts included in your bankruptcy case are earmarked as bankruptcy accounts. You do not want other accounts to be listed as bankruptcy accounts if they are not legitimately included in your case. You also need to check your credit report to make sure that all of the accounts included in your bankruptcy show a zero balance after you have filed.

Make a note of the date and the approximate time you filed for bankruptcy. Check your credit report after the appropriate number of years (7 or 10), and make sure that the record of your bankruptcy is removed from your credit report in the proper timeframe.

Begin repairing your credit as soon as you can after filing for bankruptcy. To boost your credit score, you might want to consider getting a secured credit card so that you can begin establishing a positive history with timely payments. Eventually, you will want to consider applying for a traditional credit card as well. Make all your payments on time, and be sure that the credit card companies report your history of good payments to the credit bureaus—that will help boost your credit score.

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