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How will bankruptcy impact your future credit?

It doesn't take long to fall behind on payments to creditors. Maybe the balance on your credit card has been slowly going up for months because your living expenses exceed your income. Perhaps you experienced an unexpected illness or got into a car accident that left you unable to work. Serious medical conditions, like cancer, with expensive treatments, could also create an insurmountable pile of debt for your household.

When you're unable to make payments on every bill and you're facing collection efforts, it may be time to consider bankruptcy. Bankruptcy can help you by forgiving your unsecured debts and helping you get your financial situation back under control. However, many people worry about the potential impact of bankruptcy on their credit report. Educating yourself about how bankruptcy affects your credit can help you decide if bankruptcy relief is a good option for your situation.

Yes, bankruptcy will go on your credit report

The thing you need to understand right away is that bankruptcy will affect your credit score. However, delinquent accounts from each of your lenders can have more of a negative effect. After all, each account that you've missed payments on will show up as a blemish on your credit for up to seven years. Any judgments from creditor lawsuits will also end up on your credit report.

Bankruptcy will only be one serious mark, and the good news is that it doesn't last forever. In fact, it can diminish the number of negative marks on your credit report. When you receive your discharge, all the delinquent accounts should get removed, other than the record of the bankruptcy itself.

How long that bankruptcy mark stays on your credit report will depend on the type of bankruptcy you file. Chapter 13 bankruptcy, which involves a court-approved repayment plan before discharge, will show up on your credit report for seven years. Chapter 7 bankruptcy, which allows those who pass a means test to discharge unsecured debts without repayment, will stay on your credit report for a full 10 years.

You can begin rebuilding credit right after your bankruptcy

Believe it or not, you can expect to receive a number of new credit card offers shortly after filing bankruptcy. Lenders know you cannot seek bankruptcy relief again for some time. They also profit when you accrue a large balance and need to pay financing charges.

Look for a credit card with low or no annual fees and a competitive interest rate. In some cases, you may need to secure the credit card by placing a deposit with the company. Once you have the card, you should only use it a little each month, and you should pay it in full every billing cycle. Doing so will help you rebuild credit quickly. In as little as three years, you could be ready to qualify for major financing again, such as a mortgage.

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Peter R. Scribner, Esq | 1110 Park Avenue | Rochester, New York 14610
Phone: 585-563-4535 | Toll-Free: 888-326-7220 | Fax: 585-256-6462 | Map and Directions