I wanted to address a common misconception regarding bankruptcy and its impact on credit scores. Many clients believe that a bankruptcy filing will ruin their credit for the 7 to 10 years it remains on their credit report. However, I would like to assure you that this is simply not the case.
In fact, for individuals who need to file for bankruptcy and have a low credit score prior to filing, they often actually experience an improvement in their credit score after the filing. This is because the bankruptcy stops any further negative reporting from delinquent accounts.
However, it is important to note that improving your credit score further after bankruptcy will require some effort. It will involve implementing responsible financial habits, such as making timely payments, keeping credit utilization low, and gradually rebuilding your credit history.
If you are considering bankruptcy and have concerns about your credit, I would be more than happy to provide guidance. Please feel free to reach out to one of our bankruptcy attorneys at your convenience. You can contact us through ravosalaw.com, or call us at 508-655-3013.
Though it may go without saying, filing for bankruptcy is a big decision. And while it can wipe away crippling debts, it can also impact the trajectory of one’s financial future. That said, if you or someone you know is considering filing, you may have questions about what will happen to your credit score post-bankruptcy.
I thought I’d share some insights on some of my clients’ most frequently asked questions:
How does bankruptcy affect my credit score?
Once you file for bankruptcy, the credit bureau will be notified, and your FICO score will adjust. According to debt.org, a person with an average 680 score will lose between 130 and 150 points in bankruptcy; someone with an above-average 780 score could see their score plummet by as many as 240 points.
Conversely, if your score prior to filing bankruptcy was in the 400 to 500 range, you may see a slight boost (50 points or so) as the filing washes away significant debts from your record.
How long will bankruptcy be on my record?
Bankruptcy will remain on your credit report for 7 to 10 years, depending on how you choose to file. A chapter 13 bankruptcy, which requires partial debt repayment, lingers for seven years, whereas a chapter 7 bankruptcy remains for a decade.
How can I rebuild my credit score?
There’s a light at the end of the tunnel. It is possible to rebuild your credit. Here are a few ways to start boosting that number back up:
Pay all bills on time. Set up payment reminders and consider autopay services. Make multiple payments per month as you’re able, and keep a close eye on your budget.
After bankruptcy focus on building savings, to help cover emergency expenses.
Once you have built savings and have a comfortable budget, apply for new credit in small doses. Do that byopening a secured credit card, getting a credit builder loan, or taking out a small loan from a reputable lender. Be careful to fully understand the terms of any new credit account.
Dispute inaccuracies on your credit reports, and make sure accounts are accurately reported as discharged after the bankruptcy.
Report positive payment history to the credit bureau. Doing so will show stability and prove your creditworthiness over time. Monthly payments like rent, utilities, and cell phone may qualify. Learn more about adding positive information to your report here.
If you have any questions about how your credit score will be affected by bankruptcy or what your options are, please reach out. As always, we are here to help.
Ravosa Law Offices, PC 