People who are contemplating bankruptcy often hesitate because they’re worried about how it will affect their credit score. If they file, how bad will the damage be? Will they ever get access to credit again? Or will they be living a cash-only existence for the rest of their lives?
These concerns are understandable: creditworthiness is a major currency in today’s society. It can dictate where we live, what rate of interest we pay, and how much we can borrow (as well as on what terms). People are so concerned about a negative hit to their credit score that they struggle to make ends meet for a long time before finally filing for bankruptcy—usually to prevent a collection lawsuit.
Let’s take a look at how a bankruptcy filing will impact your credit. There is some bad news (in the short term) and good news.
Let’s get the negative facts out of the way first:
Your Credit Score Will Drop
Although it’s nearly impossible to know exactly how much of a drop to expect, FICO once estimated that bankruptcy could cause someone with a score of 780 to lose up to 240 points, while someone with a 680 score risks a loss of 150. These are only hypothetical examples: what happens to your own score will depend on the current state of your credit and what information presently exists in your credit file.
Your Filing Will Remain on Your Report for Years
A bankruptcy filing on your credit report will impact your credit for years. A completed Chapter 7 will stay on your report for up to 10 years, although the discharged debts should start disappearing a few years sooner. With Chapter 13, the bankruptcy notation will remain on your report for up to seven years after discharge. Because the discharged debts remained active until the end of your three to five year repayment plan, they could actually remain on your report longer than the actual bankruptcy.
All Negative Impacts Will Gradually Diminish
This is the good news. As the bankruptcy-related notations on your report get older, they will have less of an impact on your score. Immediately after discharge, you can work on rebuilding your credit by establishing a good payment history with new creditors as well as any accounts that remained active throughout the bankruptcy. Don’t be surprised if you start receiving credit card offers within months after discharge.
While a bankruptcy filing can remain on your credit report for up to 10 years, the effect lessens as time passes and newer, more positive information is recorded.
Is it possible to get a stellar credit rating after bankruptcy? Absolutely! You just have to go through the process first to regain your financial footing and then prepare to rebuild.
If you have questions about how bankruptcy can impact your life now and in the future, please contact Attorney B. David Sisson for a no-obligation consultation. Mr. Sisson has helped many people take the steps needed for a fresh financial start, and would be pleased to discuss how he can help you. Call (405) 447-2521 today.