Filing for bankruptcy is one way for consumers to escape financial debt.
Many debts, like medical debt or credit cards, can be forgiven in bankruptcy.
However, a fresh start has substantial consequences, including a substantial drop in your credit score.
Your credit impacts your ability to get new loans at good rates in the future, so a big drop can affect you for years.
How Long Does Bankruptcy Affect Your Credit?
Your credit report details your payment history, loans, and current debt, among other financial details.
Lenders use credit reports to determine whether or not to provide credit or make a loan to you. They also use the reports to figure out how much interest they will charge you.
In general, the Fair Credit Reporting Act requires credit reporting agencies to remove most information about a bankruptcy case after 10 years.
However, the amount of time your credit report will show your bankruptcy depends on which chapter bankruptcy you file.
- Chapter 7 bankruptcy—in a Chapter 7 liquidation, you will not pay most creditors in full, so a Chapter 7 bankruptcy will stay on your credit report for 10 years.
- Chapter 13 bankruptcy—because you must make repayments toward your debts in Chapter 13, credit reporting agencies may remove a Chapter 13 bankruptcy after seven years.
There is no way to accelerate bankruptcy removal from your credit report. Once you’ve filed, the information will remain for the specified period of years before being removed.
However, you can take steps to improve other aspects of your credit, like making on-time payments.
How Does Bankruptcy Affect Your Credit?
Lenders use the information from your credit report to assign you a credit score between 300 and 850.
The number tells lenders how risky it is for them to lend you money. A higher credit score means you can get credit easier and at a better rate.
Bankruptcy is a negative mark on your credit. Still, how much it affects your credit score depends on your score when you file for bankruptcy.
Those with higher scores will see a bigger impact:
- A person with a 680 average would lose between 130 and 150 points; and
- Someone with a 780 score above the average would lose between 200 and 240 points.
On the other hand, if your score is in the 400s or 500s when you file for bankruptcy, bankruptcy may help your score.
After bankruptcy, discharged debts no longer count against your score—bankruptcy counts as the only negative mark.
People with scores in this range have witnessed credit score increases of up to 50 points.
Contact an Experienced Bankruptcy Attorney Today
One question we hear from our clients is, How long does bankruptcy stay on your credit report?
Unfortunately, the answer is between 7 and 10 years, but you aren’t out of luck during that time. We offer every client the opportunity to reach a 720 credit score within 12 to 24 months of filing for bankruptcy.
If you’re struggling to pay the bills, contact us to start your debt relief journey.