How Bankruptcy Affects Your Credit Score
Filing for bankruptcy can feel overwhelming, especially with its impact on your credit score. However, understanding the process and its long-term effects can help you make informed financial decisions.
What Happens to Your Credit Score?
When you declare bankruptcy, your credit score will typically take a significant hit—sometimes by 130 to 200 points or more, depending on your starting score. Bankruptcy will appear on your credit report for seven to ten years, depending on the type filed, which can affect your ability to secure loans or credit lines during that time. But don’t be discouraged; it’s possible to rebuild your credit post-bankruptcy!
The Two Main Types of Bankruptcy
1. Chapter 7 Bankruptcy: This is a liquidation process and stays on your report for ten years. It can discharge most unsecured debts but may require selling certain assets.
2. Chapter 13 Bankruptcy: Known as a “reorganization” bankruptcy, it involves a repayment plan lasting three to five years and remains on your credit report for seven years. It allows you to keep more assets but requires a steady income to follow the repayment plan.
Strategies for Credit Recovery
After filing, focus on rebuilding. Start by creating a budget and paying all bills on time, since payment history significantly impacts your credit score. Secured credit cards or credit-builder loans can help you establish a positive credit history. Monitoring your credit report regularly is also essential to ensure accuracy and progress.
While bankruptcy has a lasting impact on your credit, it also provides an opportunity for a fresh start. With discipline and careful planning, you can improve your financial health and credit score over time. Bankruptcy may be a setback, but it doesn’t have to define your financial future.
If you are considering bankruptcy, contact Attorney Charles Sclafani at Johnson, Sclafani & Moriarty for a free, initial consultation to understand your options. 413-732-8356
