How Bankruptcy Affects Credit Scores

What happens to your credit score or rating when you file for bankruptcy? Is my credit permanently ruined by bankruptcy? Will I ever be able to purchase anything with credit again? How long does bankruptcy stay on my credit record?

These are a few of the common, serious questions that individuals considering bankruptcy ask, and there happens to be quite a bit of misinformation out there on the subject. Here, learn more about how bankruptcy affects credit scores, and what your approach should be to the situation.

First, one of the most important pieces of information that we remind our clients of is that if you’re in the position of needing to file bankruptcy, or that you’re seriously considering it, then the unfortunate truth of the matter is that your credit is already in bad shape.

If you need or are considering bankruptcy, then you likely have been missing payments, falling behind, have a poor debt to available credit ratio, too many different recent accounts, and are facing mounting debts, and all of these factors are bad for your credit score. In other words, the worst of the damage may already be done, and it may simply be time to focus on recovery, and moving ahead.

In terms of how long the bankruptcy will stay reported on your credit record, it lasts for 10 years from the date your case was filed. Beyond that, the specifics to how bankruptcy affects credit scores is not perfectly clear.

On the positive side, it does zero the balance out on remaining debts that you have discharged. Further, it will enable you to close unnecessary accounts, make active, on-time payments for what may remain or be accrued in the future, and start to rebuild from there.

Many clients are surprised to find that they are sent offers for credit shortly after filing for bankruptcy. While this may seem counter-intuitive, people who have recently exited bankruptcy offer low risk to a lender for several reasons, including that most people have little if any debt after bankruptcy and they can’t file bankruptcy again for several years.

If you have any questions about whether or not bankruptcy may be right for you, then feel free to call the Goren & Tucci offices at 301.977.4300. We look forward to hearing from you and will be happy to provide you with a free initial consultation.