December 9th, 2008

How Does Bankruptcy Affect Your Credit?

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The worst negative record that you can possibly have on your credit report is a bankruptcy. The impact that a bankruptcy has can last for many years, as this negative mark on your credit report can last for as long as a decade. You may not be able to get approved for credit or a loan at all during the first few years after you have filed for bankruptcy, because it has a very large and very negative impact on your perceived capability to repay an obligation.

Despite the negative impact that bankruptcy has on your credit, it is still an option to consider if you find yourself in very serious debt that you cannot seem to get yourself out of. If you are living from one paycheck to the next and have no way of paying off old debts, then bankruptcy is an option that it may be worthwhile to look at. Your credit rating is definitely going to be in ruin while you recover from your bankruptcy, but it will also allow for you to finally dig yourself out of what is a certainly overwhelming hole, reestablishing good credit over time. At the same time, filing for bankruptcy can stop collection agencies from calling and harassing you, and can stop other debt related problems from plaguing your life as well.

However, you need to realize that bankruptcy is not an easy way out of your debt, or a quick fix either. The procedure associated with filing for bankruptcy can be truly emotionally draining for many years. Following a bankruptcy, you will be ineligible for loans, credit cards and many other types of credit. There will also be additional restrictions that you need to adhere to. You could also face rejection when it comes to finding a job, because employers are legally allowed to check your credit when they decide whether or not to hire you.

Before you decide to file for bankruptcy, it is vital that you sit down and discuss your situation with credit counselors working with reputable counseling organizations. They have the experience needed to advise you on steps that you can take to fix your situation, as there may be alternatives to bankruptcy that you can try before you completely destroy your credit report in favor of a fresh start. If bankruptcy truly is the only option, then they will tell you this, and will advise you on how to go through the process.

Bankruptcy can be a depressing process but it can give you the chance to begin again with a fresh credit report and without the debt burden that you had before. You should begin improving your credit health now, and continue even after filing bankruptcy. As you cultivate healthy money management habits like saving and budgeting, you will find it easier to keep yourself from going into debt again.

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  1. If you do decide to file bankruptcy, plan ahead for credit repair. Most student loans are not dischargeable in bankruptcy, so make sure that you pay them on time before and afterwards. After bankruptcy, try and get a secured credit card and maintain it properly. Secured credit cards require you put money into a bank account in case you don’t pay the credit card. Make sure you find a reputable one!

    If you are married and your spouse did not declare bankruptcy, see if you can get added to his or her credit card as an “authorized user”. It would also be greatly beneficial if you have a credit card that is not included in the bankruptcy, such as one with little or no balance. You should be able to keep this card afterwards. Just be sure not to try and reduce the balance on this card before you file bankruptcy (talk to your attorney about this).

    Eric Parker at 7:40 am on June 23, 2009
  2. Thanks respecting sharing. Like always, on the well-to-do and right on objective!

    payday advance loan at 9:13 pm on February 16, 2010
  3. What is the typical jump in credit score when a Chapter 7 bankruptcy falls off? It is not set to fall off for another two years, and I am at a 700 according to CK. I plan to have all credit cards payed off by then, so I am assuming that the impact will only be in the underwriting process and not necessarily in the score itself. Can you confirm this for me?

    Ryan at 7:04 am on April 9, 2010
  4. Our bankruptcy was finalized in Feb 09. All creditors even those with no balance closed the credit line. I now have managed to get two secured cards, the one Capital One offers was rejected and stated because I had a bankruptcy on my credit reports. Just trying to get by and not making any big moves and sticking to living within my means (tough going cold turkey after having all that credit and a good paying job). Hey not the greatest but I sure am not freaked out every day about credit card bills and an over weight mortgage and second mortgage. I did trade in two cars with a loan before my credit started sinking and bought a new car so that is good and it should last for many years. I now buy used cars and enjoy fixing them up and keeping them for daily use. Will see what happens as time goes on.

    John at 10:23 pm on June 21, 2010
  5. The Capital One card was an UNSECURED card

    John at 10:24 pm on June 21, 2010
  6. If anyone is going to declare bankruptcy, there is some extra homework you need to do because of some games that the creditors are playing.

    Be sure that the creditor did not sell your account before your bankruptyc was filed. Many creditors have collection agencies within their business to whom they might sell your account.

    If this occurs, your creditor might not advise you that this has happened and you’ll later discover that your account did not get discharged because the original creditor did not own it at the time you filed. This is happening more and more. It’s a way for creditors to get around the bankruptcy law.

    Therefore, you need to make sure that your attorney has verified who owned that account when you filed the bankruptcy.

    I became disabled and had to file bankrputcy in January 2008. I had a credit card with Washington Mutual. I listed them as the creditor. In fact, near the end of 2007 Washington Mutual sued me in court. I had almost no income. The judge gave me two continuances in court becuase he knew I intended to file bankruptcy and had no resources.

    Washington Mutual was taken over by the government in September 2008. My bankruptcy was discharged months before that occurred. Now Chase is reporting to the credit bureaus that that account was is delingquent and sold (Which is it Chase, can you have it both ways?). The credit bureaus accepted Chase’s word and the burdern of proof is on me. But, I have the evidence.

    I don’t know how Chase can report a Washington Mutual account as Chase on my credit history when the debt was discharged months before Chase took over Washington Mutual and use the dates 2005 and 2006. The account was still a Washington Mutual account and the debt was discharged on April 29, 2008

    Under Counsumer Complaints you can read complaints against Chase and Arrow Financial.

    Again, make sure that your debt is still owned by your orginal creditor at the time you file. After the bankruptcy make sure you keep every document, statement and correspondence. Make sure you discuss this matter with your attornery.

    We all have responsibility for repaying the money we borrow. But, this is a different time and much of this financial disaster was not only a result of unethical lending instituions, it was packaged, marketed and sold to the American people. They not only encouraged people to borrow, they made it unusually easy. And once this financial party started coming a part, many well intentioned consumers were caught along with the government holding the bag. We’er not only paying as individuals, we’re paying twice through by paying off the national debt which bailed out the creditors.

    John at 10:10 pm on November 18, 2010
  7. Hello just singned up, thought i should say hi!

    JohnyisAlive at 4:20 pm on November 22, 2011
  8. Glad you did! Hope you find lots of useful information here!

    bethy at 4:40 pm on November 22, 2011
  9. Does a chapter 7 fresh start program make it difficult to re-establish credit? I have heard that in some cases it was a good thing and allowed some to re-establish credit eaasily. What is the truth?

    mark m at 8:27 pm on May 25, 2013
  10. Jenna

    Hey Mark, we’d recommend asking your question to the friendly members of our Advice and Learning Center here:

    Jenna at 3:16 pm on May 28, 2013
  11. I am going to file business bankruptcy. My company has some loans that I personally guarantee. Business is sinking and we can’t repay our company line of credit as well as a supplier. Is that impact going to be as harsh personally as filing personal bankruptcy?

    Connie at 3:43 pm on September 9, 2013
  12. My bankruptcy was over 10 years ago..when will it drop off ?

    Pete at 3:21 pm on October 16, 2013
  13. My bankruptcy was over 10 years ago, how do i get it off my credit report?

    Barbara at 7:37 pm on March 11, 2014
  14. Mike

    Hi Barbara – All of the credit information on Credit Karma comes directly from TransUnion. To learn how to dispute an item on your TransUnion credit report, check out the following article:

    Mike at 9:24 am on March 12, 2014
  15. I went bankrupt in 2007 and retired in 2009 with a 40000 NYS pension. In the last 2 yrs i have paid off 2 cars and my home but recently was turned down to buy a washer and dryer on time due to insufficient credit history with my credit rating being fair.What do i do will need a new car in the next year,very confusing and unfair for a person who worked 40 yrs out of 61 lived.

    Donald L Burbidge at 8:38 am on August 21, 2014
  16. i got trans union in a 10/10/14 letter to deleted my old bankruptcy, but you still are reporting it. when will you remove it as well, and change my score?

    cheenah at 6:03 pm on October 16, 2014
  17. Charmaine

    Hi Cheenah, thanks for the comment. We’ll be able to update your account once TransUnion reports the change to us. Your score isn’t guaranteed to change though, and we definitely can’t change your score for you. We only show you the score TransUnion sends us. You can learn more about score changes here:

    Charmaine at 9:49 am on October 17, 2014
  18. This page truly has all of the info I needed about this subject and didn’t know who to ask.

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