How Bankruptcy Effects Credit Score

No ifs, ands or buts, your credit score will drop.

How low?

It depends. What does your credit score look like now? If your credit is fairly unblemished prior to filing, you can expect a large drop in your score. However, if your credit is already tarnished and full of negative items, your score may see only a slight drop. A 2010 FICO report showed that an individual starting with a credit score of 780 could drop to 540 and an individual with a 680 score could fall to 530. While these are only examples, they demonstrate that an individual with a higher score to begin with has a farther way to fall, but both individuals land in close proximity (530-540). Until you file, it is impossible to state where you will land. Your credit score may be affected more or less.

How long will the bankruptcy negatively affect your credit score?

A bankruptcy will stay on your credit report for 10 years. BUT, as time passes and positive information supplements your report, the impact becomes less and less debilitating. Further, if you are motivated to rehabilitate your credit, it can be done. Your credit score can be rebuilt in 1 – 3 years.

So how do I move on and rebuild my credit after I file for bankruptcy?

Start by verifying that your credit report is free from errors. The major credit reporting bodies are TransUnion, Equifax, and Experian. Check that your report from each of these institutions is accurate and lists your pre-bankruptcy debts as “included in BK.” From there, be sure to check back on your credit score regularly (every 4 months). Eventually, you will be able to request that the pre-bankruptcy debts be removed from your report altogether.

Next, make an honest assessment of your finances and what led you to file bankruptcy in the first place. If you fail to recognize what went wrong the first time, you will likely fall into the same pattern and end up in the same trouble as before. Once you have recognized these financial faults, weed them out and start taking action to establish positive credit.

Right after filing it will be difficult to borrow money. Why? Because you are considered a greater risk to the lender, often referred to as a subprime borrower. As a result, you will likely be offered higher interest rates and greater penalties for defaulting. On the other hand, some credit card companies may find you to be a better risk and will start sending you offers immediately after you file bankruptcy. This belief that an individual who has just filed is a good risk for credit card companies is rooted in the fact that bankruptcy law forbids individuals to receive a second discharge in a Chapter 7 bankruptcy within eight years of the first filing. Meaning: a debtor cannot rid himself of the responsibility of newly acquired credit card debt for another eight years.

Remember this: THERE IS HOPE. YOUR CREDIT IS NOT LOST FOREVER! It may take some self-assessment and discipline, but it is absolutely possible. It will be more difficult at first, but as was alluded earlier, as time passes the positive elements to your credit will increase and the “bad” will begin to dwindle.



Written by Hoglund Law

The attorneys of Hoglund law are licensed in Minnesota, Wisconsin and Ohio. Hoglund, Chwialkowski & Mrozik, PLLC is based in Roseville, Minnesota. In addition to handling cases involving bankruptcy & social security, Hoglund, Chwialkowski & Mrozik, PLLC handles faulty drugs and toxic exposure.

View all author posts →

Legal Blog Expert