What Happens to My Credit After Bankruptcy?

Your credit score will take a temporarily hit after you complete bankruptcy. The extent of that hit will vary depending on the type of bankruptcy you file and the amount of debt you have.

The Type of Bankruptcy You File Affects Your Credit Reports Differently

A person filing for bankruptcy usually chooses from two types of bankruptcy filing: Chapter 7 and Chapter 13. 

  • In a Chapter 7 bankruptcy, you will liquidate non-exempt assets and valuable property. Any proceeds from the liquidation process are applied to your debt, and the remainder is discharged. A Chapter 7 bankruptcy will show up on your credit report for up to 10 years. 
  • In a Chapter 13 bankruptcy, you will get some of the debts discharged while partially repaying other debts over a very short period of time. A Chapter 13 bankruptcy will show up on your credit report for 7 years. 

Generally, you will see a bigger hit to your credit score with a Chapter 7 bankruptcy because you make no repayments and are considered a higher credit risk to financial institutions.  

An Above-Average Credit Score Will Fall Harder

Debt.org reports that a person with an average 680 score would lose between 130 and 150 points in bankruptcy. Someone with an above-average 780 score would lose between 200 and 240 points. 

In the end, anyone who completes bankruptcy, whether they started with average credit or above-average credit, is tagged a risky borrower.

Repairing Your Credit Score After Bankruptcy

While you should expect a lower credit score following bankruptcy, you can immediately begin to build your credit back up with smart credit management:

  • Add new credit through secured credit cards or small installment loans. This will offset the “negative information” (including the bankruptcy) on your credit report.
  • Make payments on-time for all existing debts post-bankruptcy, new and old. 
  • Keep your credit card balances under 30% utilization whenever possible. 

Your score won’t go up right away. But the sooner you get started on smart credit management, the sooner you will see improvement in your credit score. After just four or five years, you may even be able to build your credit up to the good credit score range (700-749).