As we always say… bad things can happen to good people.
Most of the time, this is the case with a bankruptcy. In fact, the most common causes of bankruptcy are a loss of employment and/or medical bills from an unforeseen accident or illness.
Regardless of the cause, a bankruptcy will have serious consequences on your credit and credit scores. Depending on your credit status prior to the BK, you can expect credit scores to drop somewhere between 150 and 250 points immediately (usually within the first 30 days after filing). After that, your score can begin to recover, but it is going to take time AND good credit habits.
How Long Will a Bankruptcy Affect Your Credit?
This depends a bit on what kind of bankruptcy it is.
A Chapter 7 bankruptcy is the most common consumer situation. This is where unsecured debt is completely written off and never gets repaid. Credit cards, medical bills, and personal loans fall into this category and the Chapter 7 remains on your credit report for up to 10 years.
A Chapter 13 bankruptcy is a little different. Instead of debt being erased, it is restructured and paid over time. Only about 1/3 of all bankruptcies fall into this category and it stays on your credit report for 7 years.
Recovering From a Bankruptcy
After a bankruptcy, it will definitely be harder to obtain credit, especially in the first year. It is critical not to have negative credit items after the bankruptcy as this will drive your credit scores and your credit worthiness down even further.
Individual bankruptcy filers will normally have to begin restoring their credit with secured credit cards. These are cards where a sum of money is deposited with the credit card company and then the consumer is allowed to access a “credit line” equal to the amount that they deposited. Using this form of card responsibly for a period of time will help to restore and rebuild credit scores. It can’t be stressed enough, however, that the payments MUST be made on time in order to avoid further credit damage.
How Can We Help?
We can dispute a bankruptcy on your credit report just like we dispute any other negative credit item. In addition, as we seek to remove it and other negative credit items, it helps you to recover from the credit “free fall” that likely occurred when the BK hit your credit report. Scores can often go up faster with this process and it assists in rebuilding credit. If you or someone you know has had a bankruptcy in the last 7 years, it’s worthwhile to take a look at a credit report and see if credit repair is a viable solution to help recover from it. Give us a call for a no-obligation consultation.