While filing bankruptcy will impact your credit score, there is no way to exactly predict your credit score after bankruptcy because it depends on your individual credit history.
Credit systems also change over time and credit agencies use unique, private formulas to calculate your credit. According to FICO, a major credit scoring model, filing bankruptcy will cause your credit score to fall anywhere between 150-250 points, depending on your credit score at the time of filing.
If you have poor credit to begin with, your credit score may drop by fewer points than other debtors with better credit.
The Type of Bankruptcy Matters
When a bankruptcy is filed, the filing will be reported in the public records section of your credit report. If you file a Chapter 7 bankruptcy, the filing will remain on your credit for 10 years from the date of filing. If you file a Chapter 13 bankruptcy, the filing will remain on your credit for 7 years from the date of filing.
Chapter 13 bankruptcies are reported for a shorter period because Chapter 13 bankruptcies require a debtor to at least partially repay their debts during the pendency of their bankruptcy, which lasts between 3 and 5 years.
A common misconception about filing bankruptcy is that all of your debts are erased from your credit report as soon as you receive your discharge. This is false.
A “discharge” in bankruptcy does not mean your debts are erased, it just means that your liability on those debts is eliminated. Individual accounts will remain on your credit report for 7 years from the original delinquency date. Debts that were included in your bankruptcy will be noted as such.
While many people wonder about the negative impact filing bankruptcy has on their credit, they don’t often consider the benefits filing bankruptcy can have on their credit – both in the short and long term.
After you file bankruptcy, all the accounts reporting negatively on your credit report will stop reporting as delinquent, which could have an immediate positive effect on your score. Over time, your score will continue to improve, especially if you take steps to rebuild your credit.
Using secured credit cards for everyday purchases and paying off balances immediately is the best way to start rebuilding your credit score after bankruptcy. There are also programs available specifically to bankruptcy filers to help rebuild credit.