What Happens to your Credit Score after Filing Bankruptcy?

If you’re considering filing for bankruptcy, you probably know all too well what credit scores are and what they mean: these measures of creditworthiness are calculated using information about how much money you owe, your payment history, and other variables, and are used by potential lenders to measure their risk in loaning money. If you’ve run up a lot of debt and haven’t been able to pay your bills, your credit score is probably already pretty low. While bankruptcy offers you the chance to discharge your bills and get a fresh start, one of the most immediate impacts will be an even further drop in your credit score — one that is likely to last for quite some time.

Despite your debt being discharged, any accounts that you had owed prior to your filing will still appear on your credit report, and may be noted as having been discharged or included in bankruptcy. Though a $0 balance will be shown, potential lenders will see this, in some cases for as long as ten years unless you take appropriate steps to restore your credit. Where before the report would have shown the amount that you owed marked as “unpaid” or “past due.” Though this may seem like small consolation, at least the potential lenders will know that you no longer face relentless debt and may have the ability to begin paying your bills again.

The good news is that as soon as you’ve filed for bankruptcy, you have the opportunity to start rebuilding your credit, and there are specific ways for you to do this. Applying for a secured credit card is a great first step, as long as you keep your credit line low and pay back your debt as soon as bills come in. On-time payments and low balances go a long way to rebuilding credit. You can also apply for other types of credit, including car loans, though you may find yourself subject to higher interest rates. This is a reflection of the higher risk that you are perceived to represent, but may be worth taking on in order to demonstrate that you can be responsible for making timely payments.

Bankruptcy is a big step, and it’s important that you understand all of its ramifications before moving forward. To discuss your best options, contact us today to set up a time to meet.