How Will Filing for Bankruptcy Affect My Credit?

Will Filing Bankruptcy Affect My Credit?

Not paying your bills affects your credit negatively. And yet problems with credit are one of the main reasons people cite for not filing for bankruptcy. The truth is your credit will suffer when you file for bankruptcy, but that’s only a part of the total picture. How will filing bankruptcy affect my credit?

The impact bankruptcy has on a person’s credit varies based on his or her situation. According to FICO, bankruptcy tends to have a negative impact of about 100 to 200 points on your credit. The higher your score when you file the greater the impact.

For instance, someone with a credit score of 700, which isn’t really bad, will see a drop of about 200 points. But if your score is in the high 600s, chance are you’ll only see a drop of about 150 points.

If your score is already in the average to the below-average range, you might not see that much of a drop. And since most people considering bankruptcy tend to already have a few dings on their credit, the impact might not be as bad as they are expecting. So if you’re wondering “will bankruptcy affect my credit score?” here’s what you need to know:

Bankruptcy Chapters and Your Credit Score

In addition to your existing credit, another factor to consider regarding your credit score and bankruptcy is which chapter you choose. Chapter 7 and Chapter 13 affect your credit score in different ways.

The first major difference is the length of time each bankruptcy appears on your credit report. Chapter 7 bankruptcies can remain on your credit report for up to 10 years. Chapter 13 bankruptcy usually appears on your credit for up to seven years. Both are a significant period, but in the latter case, you’ll be free of the mark three years soon. But keep in mind, Chapter 13 bankruptcy takes three to five years to complete, while Chapter 7 is usually over in about six months. So in both cases, you’re looking at an approximately 10-year commitment regarding your credit situation.

When it comes to the actual impact, Chapter 7 is viewed as more negative than Chapter 13. This is because creditors see that you did not follow through on paying any of your debt in Chapter 7. In Chapter 13, you don’t receive a discharge until your payment plan is complete, so creditors were able to recoup at least a portion of what you owed. It’s easy to see when lenders would prefer to get some of their debt repaid, as opposed to taking a total loss on everything they’re owed.

You can learn more about the differences between Chapter 7 and Chapter 13 bankruptcy, check out this information from Experian.

Two Most Important Factors When It Comes to Your Credit Score and Bankruptcy

Though there are several things you’ll want to consider when it comes to your credit score and filing for bankruptcy, there are two things that have the greatest impact:

Filing for bankruptcy is going to impact your credit score negatively, but not as much as the continued non-payment of your debt.
The further away you get from bankruptcy the less of an impact it has.

What Does This Tell You If You Are Considering Bankruptcy?

If you’re wondering, “will bankruptcy affect my credit,” you aren’t alone. Most people ask this question before filing.

For starters, that filing hurts you, but the damage isn’t irreparable. As a matter of fact, many lenders prefer to see you take drastic action to get back on the right track than to see you ignoring your financial problems. And secondly, filing for bankruptcy sooner can be smarter than putting it off. The sooner you file the sooner you can begin to move forward and rebuild.

Keep in mind, rebuilding your credit after filing for bankruptcy doesn’t happen automatically. You need to work at it and you’ll be starting from a dark financial place. But bankruptcy is the first step toward making things light again. Our 720 credit program can help you with rebuilding your credit after you’ve filed for bankruptcy.

If you’d like to know more about how bankruptcy affects your credit or you’re ready to discuss filing with an experienced professional, contact the Law Office of Robert M. Geller at 813-254-5696 to learn more.