Many people are so worried about the impact of a bankruptcy filing on their credit score that they put off seeing an attorney until a wage garnishment order comes in or they find their bank account frozen and no means of paying the rent. Their concern is understandable. With so many lifestyle decisions, such as housing, access to a motor vehicle, and even some jobs relying on a good credit score, people will struggle to make minimum payments that they can’t afford simply to keep their credit in semi-decent shape, and then eventually file for bankruptcy when the situation becomes too much.
So What’s the Damage?
It’s impossible to calculate how much your credit score will decrease after a bankruptcy filing, but the numbers below can provide a reasonable idea.
- MoneyCrashers estimated that depending on what chapter you file, your score could fall by 160 to 220 points.
- In 2010, FICO used mock scenarios to show that bankruptcy could cause someone with a 780 score to lose 240 points while a person with a 680 score lost 150. It appeared that the higher the individual’s score, the harder their credit was hit by a bankruptcy.
Does the Chapter Matter?
While score drop does not appear to be connected to the bankruptcy chapter that you file, your decision can have an impact on how long the filing appears on your report.
- Chapter 7 Bankruptcy: If you file for Chapter 7, it will stay on your credit report for up to 10 years after discharge. The discharged debts should fall off the report after no more than seven years.
- Chapter 13 Bankruptcy: After you finish a Chapter 13 bankruptcy, it will be visible on your credit report for up to seven years. All debts paid off during the three to five-year repayment plan will also stay on the report for seven years.
While bankruptcy can appear on your credit report for years, its damaging effect on your credit will diminish as time passes. Once you get your discharge and your finances are in good shape, focus on rebuilding your score by:
- Paying all your bills on time
- Applying for a low-limit credit card. You will probably have to contend with higher interest rates at first, but as your credit improves, you may qualify for better credit products.
- Getting a secured credit card if you can’t get approved for a traditional one.
- Keeping all loan and credit card balances low
It’s more than possible to enjoy an excellent credit rating after bankruptcy: many people have done it. Once you fulfill the terms of your bankruptcy and demonstrate financial responsibility with new credit, you’ll be on your way.
Contact an Oklahoma Bankruptcy Attorney
If you’ve been wondering whether bankruptcy might be the best solution for a troubling financial situation, going over your options with an Oklahoma bankruptcy attorney can help. Attorney B. David Sisson is one of the few board-certified bankruptcy attorneys in the state, which means that he has the qualifications and experience to give you the right advice for your circumstances. For more information, please contact the Law Offices of B. David Sisson today.