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Bankruptcy And Its Effects On Credit Score

Author : Evan Parker


Are you worried about filing a bankruptcy? You think bankruptcy can have a devastating effect on your credit report. Yes, you are right to some extent. Bankruptcy is regarded as a debt relief tool but it can affect the credit report sometimes. A bankruptcy remains on your credit report for almost 10 years and you are not allowed to file for it for another 6 years. After bankruptcy it becomes difficult for you to attain any more credit as the three digit number of your credit score which finally exhibits your creditworthiness got affected badly. It can potentially lower a good credit score by 100 or more points. All the above made statements are true but still there are ways to deal with bankruptcy and the poor credit score. If you have fighting spirit and a strong urge to bounce back you can recover your credit scores. However for that first you need to understand the effects that different type of bankruptcies have on your credit score.

Chapter 7 Bankruptcy

In Chapter 7 bankruptcy the debtor sells all their non-exempt property in order to repay as much of their unsecured debt as possible. He is discharged free from the left amount of debts. However it affects the debtor’s creditworthiness a lot. Creditors regard you as a credit risk. It makes your credit approval pretty difficult in the future. Few exceptions are there like federal student loans or home loan with a higher rate of interest or few mortgaged loans which can be obtained in spite of having a poor credit rating.

Chapter 13 Bankruptcy

Unlike chapter 7 bankruptcy, Chapter 13 bankruptcy gives you an opportunity to pay off all your credits within an extended time frame. It is meant for people with short time financial problems like job loss or huge medical bill. Debtor with a steady monthly income can opt for it. A chapter 13 bankruptcy does have a negative impact on your credit report but also shows your willingness and positive attitude to pay back your debts instead of escaping them. This often enhances your credit worthiness, and helps you to attain credit within 2 – 3 years.

How to recover your credit score after bankruptcy

Filing bankruptcy is a matter of public record and no one can keep it a hushed up secret. The effects of it on your credit score are also unavoidable. However there are a few ways out which can make the life after bankruptcy easier for you.

In case of chapter 7 bankruptcy, be sure your credit report shows 0 balances. The lenders should not complain against your debts being delinquent in future.

Find a new credit card. Secured credit card can also serve the purpose well. For near about 18 months, if you can make timely payments you will be eligible to hold an unsecured credit card soon.
Another way to gain credibility to the creditors is to request one of your friends to authorise you as his credit card user. Your bankruptcy would no way hurt your friend’s credit score but the account history of your friend’s credit card will have some positive effects on your credit report.

Filing for bankruptcy has negative consequences for you and your credit report for years to come. Added to these is the disgrace and embarrassment you have to face during the entire process. It teaches you few lessons of a lifetime. For the rest of your life you stay away from debts or financial difficulties and maintain your credit report neatly without committing any more mistakes.


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This article has been contributed by Evan Parker. He is a content writer with darngoodblogging.com. He writes on financial topics including debt, bankruptcy, money saving, investment etc.

Article Source:
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Tags:   Credit Score, Bankruptcy

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Submitted : 2011-01-10    Word Count : 620    Times Viewed: 486