A credit score is a numerical rating that represents your creditworthiness based on your credit history, debt levels, and payment behavior. Bankruptcy is a legal process that allows you to eliminate or restructure debts if you cannot repay them. Bankruptcy lowers your credit score because it signals that you were unable to repay debts.
Credit scoring models consider bankruptcy one of the most negative marks that can appear on a credit report. Lenders see bankruptcy as a significant risk factor, which means it will likely be harder to get approved for new credit if you file for bankruptcy.
Types of Bankruptcy and Their Credit Impacts
Chapter 7 and Chapter 13 bankruptcy both remain on your credit report for up to ten years. Lenders might view recent bankruptcies as a higher risk, while older ones carry less weight. Chapter 7 usually lowers a credit score more because debts are discharged without repayment. Chapter 13 often looks better to lenders since it involves a repayment plan. Both types make it harder to qualify for new loans and credit cards.
Even while bankruptcy appears on a report, you can take steps to improve your credit by making on-time payments and managing your debts responsibly. The impact lessens over time, especially if you actively build a positive credit history.
Credit Score Drop: What to Expect
A credit score can drop by 100 to 200 points or more after bankruptcy, depending on your score before filing. Those with higher scores often see larger decreases. The extent of the drop also depends on how much debt you discharge during bankruptcy and whether other negative marks were already present on your credit report. While the impact is immediate, scores can begin to recover within a year with responsible credit use. Some lenders still offer credit after bankruptcy, but they often charge higher interest rates.
Rebuilding Your Credit Score After Bankruptcy
Improving your credit after bankruptcy takes time and consistency. Start by checking your credit report for errors and disputing any inaccuracies. Pay all your bills on time since payment history is a key factor in credit scores. Consider using a secured credit card or a credit-builder loan to show responsible credit use. Keep credit balances low and avoid applying for too many accounts at once. Over time, positive financial habits will increase your score and improve your chances of qualifying for new credit.
Can You Get Credit After Bankruptcy?
Getting credit after bankruptcy is possible, but lenders typically offer higher interest rates. Some credit card companies offer secured credit cards, which require a cash deposit as collateral. Credit-builder loans can also help you demonstrate responsible borrowing. Over time, making on-time payments and keeping your credit balances low can improve your creditworthiness.
How a Bankruptcy Lawyer Can Help
A bankruptcy lawyer can explain whether bankruptcy makes sense for your situation and, if so, which type suits your needs. They can also handle legal paperwork, court filings, and deadlines to prevent errors that could delay the process. They can guide you through creditor interactions and help you understand what debts bankruptcy can and cannot discharge. If creditors violate your bankruptcy protections, your attorney can take legal action on your behalf. A lawyer’s advice can help you avoid unnecessary financial mistakes and take positive steps toward rebuilding your credit after bankruptcy.
Contact a New Jersey Bankruptcy Attorney Today
Struggling with debt and worried about your credit? The Cassidy Law Firm LLC can explain your options and help you decide if bankruptcy is right for you. Call us today to schedule a free initial consultation with our experienced bankruptcy lawyers.