Bankruptcy And Your Credit Score

Bankruptcy represents a tradeoff. It provides relief by eliminating debt obligations or reducing unmanageable debts, but it also signals to lenders that you pose a credit risk, dropping your credit score. This decline or bad credit can make it challenging to obtain loans, credit cards, and mortgages in the immediate future.

Bankruptcy can significantly impact credit scores, but the exact effects can vary depending on several factors. While it is generally true that bankruptcy affects higher credit scores more than lower ones, it’s important to note that the impact can still be substantial regardless of the initial credit score.

Effects of Bankruptcy on Your Credit Score


Bankruptcy typically leads to the lowest credit rating, R9, which indicates a significant credit risk.

Filing for bankruptcy can profoundly impact various financial aspects of your life. Once businesses and lenders review your new credit report with its negative information, several areas can be significantly affected:

  1. Getting a car loan may become more challenging as lenders view you as a higher credit risk, resulting in stricter loan terms or potentially even denial of credit.
  2. Purchasing a house or renting an apartment may become more complex as landlords and mortgage lenders may hesitate to approve applications due to the negative impact of filing bankruptcy on your creditworthiness.
  3. If you are approved for financing, you may face higher interest rates due to the increased risk associated with your credit history.
  4. Unsecured credit cards may come with low credit limits initially, making it harder to access higher lines of credit until you can demonstrate improved creditworthiness.
  5. Your student loan repayment schedules may be affected, potentially leading to changes in terms or repayment options.
  6. Penalties for late payments may be more severe, and it is crucial to make payments on time to avoid further damage to your credit.
  7. Credit utilization, especially for non-essential purchases, may be limited as lenders may be cautious about extending additional credit to you.
  8. Large cash deposits may raise concerns as lenders may question the source of the funds or cash deposit, given the bankruptcy filing on your credit report.
  9. Obtaining loans without a qualified co-signer may be challenging, as lenders may require additional security or guarantees due to the federal bankruptcy code.
  10. Authorizing users to certain credit cards may be restricted, as lenders may be cautious about extending credit access to bankruptcy-associated individuals.
  11. Security deposits or returns of security deposit safety deposits for utilities or rental properties may be affected, as landlords and service providers may consider bankruptcy when assessing potential risks.

Your Credit Scores After Bankruptcy

Bankruptcy is considered a major adverse event in credit scoring models, and as a result, it can significantly impact your credit score. The decline in your credit score reflects the increased risk of lending to an individual who has filed for bankruptcy.

However, bankruptcy filings do not solely determine credit scores. They consider various factors, including payment history, credit utilization, length of credit history, and recent credit inquiries.

Bankruptcy filings are indeed included in the public records section of credit reports. Credit bureaus actively gather or receive information from courts to ensure that credit reports remain current and accurate.

This information is then used to update the public records section, which contains details about bankruptcy filings, including the type of bankruptcy, filing date, and bankruptcy case number. As public records, this bankruptcy information is accessible to anyone who pulls your credit report and helps provide a comprehensive overview of your financial history.

When you file for bankruptcy, it will typically appear in two sections of your credit report: the legal or public record section and the personal loan individual account section.

Generally, a bankruptcy filing can remain on your credit report for a certain period. Under Chapter 7 bankruptcy, it typically stays on your credit report for ten years from the filing date. Chapter 13 bankruptcy, which involves a repayment plan, usually remains on your credit report for seven years from the payment plan or the filing date.

FICO Scores

Creditworthiness is assessed using FICO scores, a numeric scale ranging from 300 to 850. A higher score indicates stronger creditworthiness and better credit terms. Credit bureaus receive information from credit issuers and lenders, which calculates your credit score based on factors like payment history, credit utilization, length, and recent inquiries. These factors help determine your creditworthiness and generate your FICO score.

Rebuilding Your Creditworthiness: Steps to Improve Your Credit After Bankruptcy

While bankruptcy can substantially impact poor credit, responsible credit behavior and timely payments in the future can contribute to the gradual rebuilding of your credit score over time.

Consulting with a bankruptcy lawyer can be beneficial if you still need to determine how to proceed with your financial situation after considering bankruptcy. They can guide and help you develop a strategy tailored to your circumstances.

Rebuilding your credit after bankruptcy requires a disciplined approach. Call one of our bankruptcy attorneys if you need help visualizing a debt-free future.

Steps To Rebuilding Credit Scores

Monitor Your Credit Scores

Check your credit score and reports frequently

Stay updated on your credit score by accessing it through reputable sources. Review your credit reports from all three major credit bureaus—Experian, Equifax, and TransUnion—to get a comprehensive overview of your credit history.

Review your credit reports for accuracy

After going through bankruptcy, carefully examine your credit reports to ensure that all discharged accounts are accurately reflected with a zero balance and the proper indication of a bankruptcy discharge. Verify that each listed account belongs to you, and confirm that payment statuses and dates are correct.

Follow up on disputes

After filing a dispute, follow up with the credit bureaus to ensure that your concerns are being addressed. They have a specific timeframe to investigate and respond to your dispute.

Make Payments Your Priority

Focus on your payment history

Payment history is significant in determining your credit score, accounting for 35% of your FICO credit score. Consistently making payments on time will positively impact your creditworthiness.

Repay outstanding debts promptly

If you have any outstanding debts, work towards repaying them on time. This can help improve your credit score and demonstrate your commitment to managing your financial obligations responsibly.

Prioritize court-ordered payments (for Chapter 13)

If you filed for Chapter 13 bankruptcy, make all court-ordered payments to creditors on time. Adhering to the repayment plan you file bankruptcy on is crucial for completing the bankruptcy process and rebuilding your credit.

Stick To A Budget

Create a budget

Develop a comprehensive budget that outlines your income and expenses. Consider essential expenses, such as housing, utilities, transportation, and groceries, while also considering discretionary spending categories.

Stick to your budget

Discipline yourself to adhere to the budget you’ve created. Avoid overspending and make conscious choices about your purchases. Prioritize needs over wants and avoid unnecessary expenses that could lead to debt accumulation.

Plan a spending strategy

As your credit score improves over time, developing good credit habits and a thoughtful spending strategy is crucial. Consider your financial goals and prioritize your spending accordingly. Make informed decisions when using credit and maintain a responsible approach to managing your finances.

Try Secured Credit Cards

Building a positive credit history

As you use a secured credit card, you must keep your balance low about your credit limit and make timely payments every month. Responsible credit card usage and on-time payments contribute to building positive credit history, improving your credit score.

Interest-free if paid in full

You can avoid paying any interest charges by using your credit responsibly and paying your balance in full each month. This allows you to rebuild your credit without incurring additional costs.

Start with one secured credit card

In the early stages of post-bankruptcy, one secured credit card is typically sufficient. Focus on using the secured card more responsibly and making timely payments. This disciplined approach to monthly payments helps rebuild your credit score and fosters better spending habits.

Consider Becoming an Authorized User on a Credit Card

Positive impact on credit score

If the credit card issuer reports the card’s positive payment history to the major credit bureaus, becoming an authorized user of the credit line can boost your credit score. The primary cardholder’s responsible credit behavior can reflect positively on your credit report.

Potential risks

It’s essential to be aware of the risks involved. If the primary cardholder makes late payments or maxes out their credit limit, it can negatively affect your credit score. Before becoming an authorized user, ensure that the primary cardholder has a solid payment history and practices responsible credit utilization.

Communication and trust

Establish open communication and trust with the primary cardholder. Discuss expectations and ensure both parties are committed to responsible credit usage. Regularly monitor the account to ensure it remains in good credit standing.