When you declare bankruptcy, you expect to take some time to rebuild your finances. But one major concern of bankruptcy is the affect it has on your credit score.
Bankruptcy will affect your credit. How much of a hit you take will depend on how much debt you have on your credit report and how you use bankruptcy to deal with that debt. Fortunately, a bankruptcy will eventually fall off your credit report.
Bankruptcy will lower credit, but not forever
Bankruptcy can affect everyone’s credit differently. But most people find that their score falls into the 500-point range after filing. Typically, people with higher credit see their score fall farther.
However, while bankruptcy can significantly lower your credit score, that change can be temporary. A bankruptcy only stays on your credit for a maximum of 10 years. And as time goes on, the effect of the bankruptcy on your credit score goes down. Some people can even rebuild their score in as little as two years after discharge.
Rebuilding your credit after bankruptcy
After you have filed for bankruptcy, you can start rebuilding your credit. If you filed for Chapter 7, the discharge of much of your debt can help you start saving. Or, if you filed for Chapter 13, your payment plan may allow you a little extra left over to build savings. You may also choose to apply for a secured credit card to help you rebuild your credit. Focusing on improving your finances can help you match or exceed the credit score you had before you filed bankruptcy.
Bankruptcy lets you start over
If you find yourself drowning in debt, bankruptcy can help you reset your finances and start over. While filing will lower your credit score, the bankruptcy will not stay on your credit report forever. And by eliminating or reorganizing your debt, you have more wiggle room to rebuild your credit score.