How Long Does Bankruptcy Affect My Credit?

This question was probably asked to me over 1,000 times during my time as a bankruptcy paralegal. I attribute the frequency to the negative rumors that continue to surround filing bankruptcy. People constantly hear totally irrational phrases like “bankruptcy takes your credit score to zero” and “if you file bankruptcy you will never get another loan” and they are simply not true. Here are a few of the true facts regarding how long bankruptcy affects your credit:

Bankruptcy remains on a Credit Report for 7-10 years

Once you have credit taken out in your name and under you social security number 3 companies begin tracking what is called a “credit report” for you. These three companies are Equifax, Experian, and Trans Union. Your credit report reflects all credit accounts in your name and their balances, delinquencies, and overall status. When someone files a Chapter 7 bankruptcy in order to wipe away their unsecured debt and their case is completed these three companies are notified by each creditor listed in the bankruptcy paperwork. They are notified to report the balance of the debt as $0.00 and place the word “bankruptcy” as the status for the debt. Depending on the type of bankruptcy you file this will remain on your credit report for 7-10 years.

Bankruptcy doesn’t set your Credit Score to zero

Along with the creation and tracking of your credit report the three companies above are also responsible for compiling your credit score: a number between 450 and 900 that defines the creditworthiness of a person. Ultimately this number tells creditors how likely you are to pay off your debt according to the 3 credit bureaus. When a person files bankruptcy their credit score goes down because they are wiping away debts that they technically did not “pay off”. However, bankruptcy doesn’t drop the credit score down to the lowest possible number of 450.

Bankruptcy doesn’t disqualify you from obtaining new credit

With the reflection of bankruptcy on your credit report and credit score many people think that their chances of obtaining new credit are close to impossible. Fortunately for us that isn’t the case. The good news is that many people say that in just one year after filing for bankruptcy their credit is better than ever before. This is due to positive financial decisions once the bankruptcy is completed. In most cases it takes about 2 years after going bankrupt for a person to obtain a mortgage, and about 6 months for a new car loan.

There are companies that specialize in rebuilding your credit after completing a bankruptcy and they can help you achieve your new financial goals. Think about it this way: if you are considering the option of filing bankruptcy then your credit score and credit report are probably not too great anyway, so the only direction you can go is up! Don’t believe the myth’s, in the long run filing bankruptcy can really help your credit.

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