What Happens to Your Credit Score After Filing for Bankruptcy?

If late payments, collections, and growing balances are already hurting your credit, you may wonder whether filing for bankruptcy will make things even worse. Bankruptcy can significantly affect your credit score and remain on your credit report for years, but its effect on your score may lessen over time. Your credit can begin to improve before the bankruptcy disappears from your report, as you build a new record of responsible credit use. 

At Vivona Pandurangi, PLC, we help people in Falls Church and Alexandria, Virginia, as well as Arlington, Fairfax, Manassas, Prince William, and Loudoun, understand their bankruptcy options. If concerns about your future credit are keeping you from considering bankruptcy, we can help you weigh that consequence against the financial problems you are trying to resolve. 

How Much Will Bankruptcy Lower Your Credit Score?

There is no single number of points that everyone loses after filing for bankruptcy. The effect depends on the information already in your credit history and other factors used to calculate your score. 

Bankruptcy is serious negative information for credit-reporting purposes. However, your credit may already reflect missed payments, high balances, collections, charge-offs, or other problems before you file. Someone with an already damaged credit history may therefore experience a different change in their score than someone whose credit was stronger before bankruptcy.

Instead of focusing only on the number of points you might lose, consider where your credit stands now and what is causing the damage. Bankruptcy may address qualifying debts that are contributing to your current financial problems, although the bankruptcy itself will become part of your credit history. 

How Long Does Bankruptcy Stay on Your Credit Report?

A bankruptcy can remain on your credit report for years, and the reporting period generally differs between Chapter 7 and Chapter 13. The Consumer Financial Protection Bureau (CFPB) explains that Chapter 7 bankruptcy generally remains for 10 years and Chapter 13 for seven years.

However, that doesn't mean your credit score stays the same throughout the reporting period. The CFPB notes that recent negative information generally affects credit scores more than older information. 

As the bankruptcy ages and you add positive information to your credit history, your score may improve even though the bankruptcy remains visible to lenders reviewing your report. 

Can Your Credit Improve Before Bankruptcy Comes Off Your Report?

Yes. You don't have to wait seven or 10 years to start rebuilding your credit. 

What you do after bankruptcy matters. Paying current obligations on time, keeping credit balances manageable, and using new credit cautiously can help establish a positive payment history. Checking your credit reports also gives you an opportunity to identify and dispute inaccurate information that could unnecessarily hurt your score. 

This distinction matters if the length of the reporting period makes you hesitate about filing for bankruptcy. Chapter 7 and Chapter 13 bankruptcy can remain on your credit history for years, but that does not prevent your credit from improving during that time. 

Chapter 7 and Chapter 13 Affect Your Credit Differently

Both Chapter 7 and Chapter 13 appear on credit reports, but they are different forms of bankruptcy and generally have different reporting periods. 

Chapter 7 involves the potential liquidation of nonexempt property to pay creditors and can discharge qualifying debts. Chapter 13 allows an individual with regular income to propose a court-approved repayment plan, generally lasting three to five years. The U.S. Courts website explains the Chapter 13 repayment process and the requirements that apply while the plan is in effect.

While Chapter 13 generally remains on a credit report for fewer years than Chapter 7, that difference alone should not determine which chapter you pursue. Eligibility, income, debts, property, and what you are trying to accomplish through bankruptcy are more fundamental to that decision. 

How Can You Rebuild Credit After Bankruptcy?

Rebuilding credit is usually gradual. The goal is to establish a new record showing that you can responsibly manage the financial obligations you take on after bankruptcy. 

Start by checking your credit reports for errors. Then focus on paying current bills on time and keeping balances manageable. If you obtain new credit, use it carefully rather than taking on substantial debt just to raise your score faster. 

The CFPB recommends paying bills on time, avoiding getting too close to credit limits, and being cautious about repeatedly applying for new credit. These habits can help you build a positive credit history over time. 

Be skeptical of companies promising to remove accurate bankruptcy information or other legitimate negative information from your credit report. Accurate negative information generally cannot simply be erased because you pay a credit repair company to remove it. 

Should Credit Concerns Stop You From Filing for Bankruptcy?

Your credit score is one consideration, but it should be viewed alongside the financial circumstances that led you to consider bankruptcy in the first place. 

If you are already missing payments, carrying balances you cannot realistically repay, or dealing with collection accounts, avoiding bankruptcy does not necessarily protect your credit. Those problems can continue affecting your credit as long as they remain on your credit report and the underlying debt remains unpaid.

Bankruptcy is not the right choice for everyone. Understanding how filing could affect both your current debts and your future credit gives you a better basis for deciding whether Chapter 7, Chapter 13, or another approach fits your circumstances. 

Discuss the Credit Impact of Bankruptcy Before You File

At Vivona Pandurangi, PLC, we help clients evaluate bankruptcy in the context of their financial situation. Our bankruptcy attorneys can review your income, debts, assets, and goals and explain how Chapter 7 or Chapter 13 may apply to your situation. 

A lower credit score after filing is only one part of the decision. Understanding the relief bankruptcy may provide, the obligations involved, and what rebuilding your credit could look like afterward can give you a clearer picture of the tradeoffs. 

If debt has become difficult to manage, contact us to discuss your bankruptcy options in Falls Church and Alexandria, Virginia, as well as Arlington, Fairfax, Manassas, Prince William, and Loudoun.