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How Will Bankruptcy Affect My Credit?

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In a Nutshell

Filing bankruptcy does not ruin your credit forever! If you need debt relief but are worried about how a bankruptcy affects your credit rating, this article is for you.

Written by Attorney Andrea Wimmer
Updated November 28, 2021

Bankruptcy & Your Credit Score

Unlike what you may have heard - filing bankruptcy does not ruin your credit forever! It’s one of the biggest myths about bankruptcy. 

In reality, many people see their credit score go up almost immediately after filing bankruptcy. If you need debt relief but are worried about how bankruptcy affects your credit rating, this article is for you. Let’s start at the very beginning...

Is Your Credit Rating Really Worth Stressing About? 

Are you current on all your debt payments? Yes? No? Maybe? 

If you’re behind on any debt payments, your credit score could probably be better. So, rather than worrying about possibly making your already bad credit worse, think about how a bankruptcy discharge could help you build credit.

So, what happens to my credit score if I file bankruptcy

Like all negative information reported to the credit bureaus, filing any type of bankruptcy will have a negative impact on your credit score. Since a bankruptcy filing is public record, they will find out, even if they’re not directly notified by the bankruptcy court

But, unlike other things that have a negative effect on your FICO score, a bankruptcy filing is often the first step to building a good credit score. 

But I’ve Never Missed a Payment, I Just Have No Hope of Ever Paying Off My Debt!  

If you’re one of the few that has been able to stay current with all debt payments, but need to reorganize your financial situation through a Chapter 13 bankruptcy, your credit score will go down initially. 

But, that’s not the end of the story. Once your bankruptcy discharge is granted, your debt amount will go down significantly! And guess what helps build and maintain good credit? A low debt-to-income ratio. 

Debt-to-income ratio?!

Put differently, the best credit rating is possible only if your total unsecured debt is as low as possible. A bankruptcy discharge eliminates most, if not all of your debt. It’s the one thing you can do that your current debt management methods can’t accomplish. 

Doesn’t bankruptcy stay on your record for 10 years? 

Well, yes, under federal law, the fact that you filed bankruptcy can stay on your credit report for up to 10 years. This is true for all types of bankruptcy. But, Chapter 13 bankruptcy stays on your credit report for only seven years from the filing date. 

According to Experian, that’s because unlike a Chapter 7 bankruptcy, Chapter 13 involves a repayment plan that pays off some amount of debt before a bankruptcy discharge is granted. 

So, How Can a Bankruptcy Filing Possibly Help My Credit Rating?

Think of your credit report like a timeline that dips down when negative information is reported and steadily goes up with every on-time payment you make. After a while, the bankruptcy filing will be nothing more than a blip in your timeline. 

Remember, your credit history is … well … history. What you do to improve your personal finances today matters more than what you did last year!  Let’s take a look at some of the things you can do to build good credit after a bankruptcy filing. 

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Building Credit After Chapter 7 Bankruptcy

Most can rebuild their credit rating and have a better score than ever within 1 - 2 years after they file Chapter 7 bankruptcy. But, you can’t take this for granted. To get the full benefit of your bankruptcy filing, you’ll have to make an effort to improve your credit score.

Getting new credit after filing bankruptcy – it’s easier than you might think! 

One of the biggest surprises for many bankruptcy filers is the amount of car loan and credit card offers they receive - often within a couple of weeks of filing their case. It’s a lot! Why?  

Filing Chapter 7 bankruptcy makes you a low credit risk

The Bankruptcy Code limits how often someone can file a bankruptcy. Once you get a Chapter 7 bankruptcy discharge, you’re not able to get another one for 8 years. Banks, credit card issuers, and other lenders know this. 

They also know that, with the possible exception of your student loans, you have no unsecured debts and no monthly debt payment obligations. This tells them that you can use all of your disposable income to make monthly payments. 

Beware of high interest rates.

Pay close attention to the interest rates in the new credit offers you receive. Credit card companies and car loan lenders have the upper hand here. They know you want to build your credit rating back to an excellent FICO score. And they know that you’ll be willing to pay a higher interest rate than someone with perfect credit and no bankruptcy on their record. 

Shop around.

Don’t sign up with the first credit card company that sends you a new credit offer. Shop around first. Find out if there is an annual fee for having the card. And research secured credit cards. They’re an excellent way to build up your credit score. You’ll have to pay a security deposit, but will be able to keep your interest rate much lower than with an unsecured credit card. 

If you’re financing a car after filing bankruptcy, make sure the car loan is affordable. Don’t shop for your dream car. Go for a car that works for your family with monthly payments that you can afford. You can always upgrade once your credit repair efforts have paid off and you qualify for a close to 0.00% interest rate on a new car loan.

Use your new credit, but don’t rely on it.

After opening a new credit card, use it regularly and responsibly. Never charge more than you know you can pay off when you get the credit card bill the following month. Build your credit by making all of your payments on time. 

Remember, your payment history is a large factor when it comes to your credit score. Finally, keep the total debt amount on a card well below the credit limit. Having a lot of unused credit compared to your total debt amount improves your credit rating. 

Monitor your credit report.

You’re entitled to a free credit report from each one of the three credit bureaus every 12 months. Plan to take advantage of this to keep an eye on your credit history. Mistakes happen and the sooner you catch them, the lower their negative impact on your credit rating. 

Make sure your bankruptcy filing is removed when the time comes. 

Your bankruptcy filing will be removed automatically 10 years after the bankruptcy filing date. But, credit reporting errors are common, so don’t just trust that the bankruptcy will be removed. Check your credit report when the time comes, and be sure to file a dispute if the bankruptcy filing is still part of your credit report even though more than 10 years have passed. 

Will my credit score improve once the bankruptcy is gone?

It might seem obvious that your credit score will improve when a bankruptcy drops off of your credit report and out of the calculation. But remember, at that point you’ve had 10 years to build a solid payment history and demonstrate that you’re a low credit risk. You’ll have good credit long before their Chapter 7 bankruptcy case is removed from their credit report.

Don’t trust any credit repair companies that promise to get your bankruptcy removed early.

You can’t get a bankruptcy removed from your credit report early; neither can they. The credit reporting system depends on consistency. 

If some people could remove bankruptcies early and others who filed at the same time still showed those filings, credit scores and credit reports would be meaningless. So, don’t fall for any promises that can’t be kept. 

Let's Summarize...

Filing bankruptcy doesn’t mean you’ll never ever get new credit. It doesn’t even mean that you have to wait 10 years to get new credit. Still skeptical? Check out the Upsolver Community page on Facebook and see for yourself! 

Filing bankruptcy is not right for everyone. If you’re not sure if you need debt relief, speak to a credit counselor. You can schedule a free appointment with a nonprofit credit counseling agency and help them evaluate your financial situation.

If Chapter 7 bankruptcy is right for you, but can’t afford to pay a bankruptcy attorney, check out this guide on how to file bankruptcy for free or take this short quiz to find out if Upsolve’s Free Web App is right for you. 

Written By:

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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