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Understanding Your Credit Score When You File for Bankruptcy

a meter reads a credit score, from good in green to poor in red.

Understanding Your Credit Score When You File for Bankruptcy

Usually, when filing for bankruptcy, you’ve exhausted all other financial options to remain afloat. In terms of being able to pay off your outstanding debt. It may be the smartest thing to do to absolve yourself of having to pay back your lenders. But the downside is what will happen to your credit score, for many years to come.

When filing for Chapter Seven, your file will show this for up to 10 years. When filing for Chapter 13 Bankruptcy, your file will show this for up to seven years. But could extend to 10, too, if you fail to undergo specific mandatory criteria. Simplified, both types of bankruptcies have the same impact on your credit score. But, any potential lenders might favor one type over another.

Bankruptcy and its Effect On Credit Score

Keep in mind, someone with a better credit score may be influenced more so than someone with a preexisting poor credit. In many instances, someone with good credit, 700 or up, for example, may only drop by 200 points or so. This is for sure detrimental, but someone with a credit score of 660 to 680 may only experience a drop of 130 to 150 points.

Bankruptcy’s Effect On Credit Report

Chapter 7 remains on your credit report for 10 years, whereas other references stay for seven years, consisting of Chapter 13 public record entries, all accounts in the bankruptcy, and any third-party collection debts, judgment, and tax liens settled via a bankruptcy.

Bankruptcy’s Diminishing Effects

Eventually, over several years, the burdening impacts will begin to lessen and dwindle. When reconstructing your credit post-bankruptcy, time is your friend. Though bankruptcy evidence will be shown in your credit score so long as it displays on your credit report, its effect diminishes given enough time.

In some instances, your credit score may even recuperate some soon after the bankruptcy registers on your report. This happens because, in theory, you are no longer indebted to any discharged debts. This benefits your credit utilization ratio (the remaining amount you owe, divided by your credit limit).

According to FICO, someone with a credit score of 680 would take approximately 5 years from the time of bankruptcy to once again recover that credit score, granted, only if said person institutes healthier credit habits.

Eventually, your evidence will be absolved from your credit report entirely, subsequently, no longer being a factor of your credit scores.

Post-Bankruptcy Credit Rebuilding

Rebuilding your credit score may seem to be very daunting, but fear not! It is for sure doable. Given enough time, effort, and determination, you can recover your credit and absolve yourself of the burdens it has placed upon you and your family.

Here are some steps you can take to restore your credit afterward:

Confirm The Report Was Filed Appropriately

AnnualCreditReport.com offers a free credit report service that allows you to view your reports

and shows you whether all your debts that relate to your bankruptcy are

“discharged” with a balance of zero or not.

Establish A Fresh Line Of Credit

A secured credit line, aka, credit builder loan, establishes a clean payment history.

Keeping true to your payment due dates and debt levels low will only help even more.

Proctor Your Growth

Utilizing Credit.com’s free-of-charge credit report snapshot, you can also check to see your

progress as you restore your credit.

At Bartifay Law Offices, P.C., we understand bankruptcy can seem detrimental, but our team is committed to answering any questions, comments, or concerns you may have, and helping you overcome the unfortunate hurdle of financial bankruptcy. Call today at 412-824-4011 to find out more about what we can do for you!

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