How Does Filing for Bankruptcy Affect My Credit Score?

 Posted on February 14, 2014 in Chapter 7 bankruptcy

Every person who opens up a credit card, gets a loan, or finances a car has a credit report. Over years of making payments and opening new lines of credit, the credit report will reflect your ability to pay bills on time and effectively manage your debts. Lenders will review your report while deciding if you are a good or bad credit risk. Events like filing for bankruptcy are also reported to credit reporting agencies and can negatively impact your score.

The type of bankruptcy which is filed has different effects on your report. A Chapter 7 bankruptcy can eliminate the majority of your debts such as credit cards, medical debts, and even secured debts. Since it does not require the debtor to repay debts, it will remain on your credit report for ten years. A Chapter 13 bankruptcy is a reorganization which requires repayment of part of the debts. This kind of bankruptcy stays on your credit report for seven to ten years, depending on the credit reporting agency.

A bankruptcy will also lower your overall credit score. A higher credit score will be decreased by more points than a lower credit score. Credit agency FICO created two examples of how this works. If you have a credit score of 780, filing for bankruptcy can take between 220 to 240 points off your score. Whereas, if your credit score is 660 and you file, the decrease is only 130 to 150 points. The rationale is that those with a lower score are already risks, so a bankruptcy is not as detrimental.

Being afraid of filing for bankruptcy can mean years of struggling with debts. If that means that you are missing payments, opening up new accounts, or using too much of your credit, then your credit report will decrease due to this risky behavior. Filing for bankruptcy gives you a financial restart necessary to start rebuilding your credit. Contact an experienced bankruptcy attorney in San Antonio today to discuss what filing for bankruptcy can do for you.