Those who find themselves in a position to begin considering the possibility of filing for bankruptcy are most likely well aware of what their credit score is, and the impact of credit score on one’s overall financial health. The reality is that one’s credit score does have an enormous affect on one’s financial life.
Keeping one’s credit score up is an important task for all, and consumers should be careful to avoid some of the common mistakes that can lead to a dive in their credit score. These mistakes include things like missing payments, especially payments for medical bills, using up one’s maximum available credit on one’s cards, and applying for multiple loans over multiple months, or applying for multiple types of loans within a short period of time.
When it comes to filing for bankruptcy, one of the most common question debtors have is how much a bankruptcy filing will impact their credit score. The fact is that filing for bankruptcy will have a negative impact on one’s credit score, causing it to drop up to 100 points or more. The result is that, after the bankruptcy process is complete, the debtor will have received relief from the bankruptcy court, but will have to work to rehabilitate his or her credit.
The extent of the impact of a bankruptcy filing on a debtor’s credit does depend on the type of bankruptcy filing. A Chapter 7 filing remains on a debtor’s credit report for 10 years, whereas a Chapter 13 filing remains for 7 years. This doesn’t mean that a debtor will be unable to have access to credit for these amounts of time, but it will take some time before the debtor’s credit will be build back up.
In our next post, we’ll continue looking at this important topic.
Source: myfico.com, “Credit Report Q&A: Considering Bankruptcy,” Accessed Feb. 12, 2016.