How Much Does Bankruptcy Affect Your Credit Score?


In most cases, bankruptcy lowers your credit score. Here’s why and things you can do to tip it over when it’s unloaded.

Does Bankruptcy Create Bad Credit?

One of the reasons bankruptcy hurts your credit is that you don’t make payments like you normally would outside of an active bankruptcy. Payment history is the primary determinant of your credit score. Once you file for bankruptcy, you are saying that you cannot repay your loans as you originally agreed or that you can only pay a portion of what you owe your creditors in bankruptcy.

Another reason bankruptcy hurts your credit is because bankruptcy and attempting to erase your debts indicates to credit scoring models that you have not been able to manage the debt you have incurred. However, there are many reasons why a person may need to file for bankruptcy, such as sudden job loss, medical emergency, divorce, or other unforeseen life events. No matter what underlying reason (s) you decide to file for bankruptcy, it can always cause a lot of damage.

And, it should be seen as a last resort if you can’t pay off your debts.

The damage that occurs to your credit score after you file for bankruptcy depends on the state of your credit before you filed. If your credit score was not great before you filed, you may only see a modest drop in points. But if your credit score was in good shape, you may see your credit score drop more sharply.

Effects on your credit: Chapter 7 vs Chapter 13

Most widely used credit rating company FICO says whether you qualify for chapter 7 or chapter 13, the impact on your credit score is the same.

However, Chapter 7 stays on your credit reports for longer – typically up to ten years from the date of filing. It is a short process and you are only in active bankruptcy for a few months until it is discharged if you are successful.

Chapter 13, on the other hand, stays on your credit reports for up to seven years from the date you file, and you’re in active bankruptcy for three or five years. Chapter 13 is a repayment bankruptcy, so you work with your trustee on a payment plan to pay off as much of your debt as you can. Once you’re done with Chapter 13, you only have a few more years to report it on your credit reports.

Because Chapter 7 stays on your credit reports longer, you feel the impact on your credit score and reports longer, but either way, the effects of the damage lessen over time. If you are looking for less long-term impact and can qualify for Chapter 13, it might benefit you more in the future.

After discharge from bankruptcy

If you successfully complete your bankruptcy, the bankruptcy is discharged and all remaining debts that were not paid during the bankruptcy are cleared. However, the negative effects of bankruptcy can linger once you have obtained these discharge papers. There are ways to recover from bankruptcy, however, and one of those ways is to get new credit that you can handle.

It’s important to remember that time heals credit reports. Over time, negative marks such as bankruptcy lose some of their effectiveness, so from year to year, bankruptcy on your credit reports has an impact on your credit score less and less. Once it falls off your credit reports, it no longer impacts your credit score.

Accepting new credit after bankruptcy

Once your bankruptcy is discharged, it is much easier to qualify for new credit. In fact, a lender may view a borrower whose bankruptcy has recently been discharged a little more favorably than a borrower with usual bad credit – but it depends on your overall financial situation and your lender.

Anytime you are a bad credit borrower looking to get new credit, your income, debt ratio, credit reports, down payment, etc. are examined to determine your ability to repay the loan. If you apply for new credit from a lender that specializes in bad credit and bankruptcy, you may be more likely to qualify.

Your finances might be healthier because your bankruptcy has been discharged, but that doesn’t mean you should go bananas and take on lots of new loans at the same time. Here are some tips to help you as you rebuild your credit score after bankruptcy:

  • Accept new credit sparingly – Every time you apply for new credit and the lender does a thorough investigation, it lowers your credit score a bit for up to 12 months. If you apply for multiple lines of credit from many different lenders, it can hurt your credit even more.
  • Consider a credit builder loan – These loans are designed to help borrowers build up savings credit and repair. You make loan payments until you finish them, but all payments go into a savings account that you can keep at the end of the term. Paying on time can improve your credit, and you can walk away with big savings.
  • Pay all your bills on time – Speaking of payment history, making sure all of your current bills and loans are up to date is necessary to repair your credit score. Remember, payment history carries the most weight in your credit score, so timely payments should be a priority. After bankruptcy, much if not all of your debt may have been written off, making it easier to maintain a good payment history.
  • Working with bankruptcy lenders – Although a recently discharged bankruptcy means that you are more likely to be eligible for credit than an active bankruptcy, not all lenders can help you with difficult credit situations. Despite the discharge, many traditional lenders may still be reluctant to approve you for a loan. Subprime lenders who are registered with special finance dealers specialize in helping borrowers with bad credit, no credit, and bankruptcy with vehicle financing.

Repairing credit can seem overwhelming, but it can be done with a little patience and action. You can also monitor your credit reports weekly for free now. Visit to request your three national credit reports from Experian, TransUnion, and Equifax. The COVID-19 pandemic has caused financial conflicts, so instead of just one free credit report every 12 months, you can get weekly reports through April 2022 from each office.

Auto loans and bankruptcy

Filing for bankruptcy can not only temporarily hurt your credit score, but it could also have caused problems with your transportation. Some borrowers are unable to keep their cars and loans after declaring bankruptcy. And the kicker? Having bankruptcy on your credit reports can make it difficult to approve another auto loan from some lenders.

However, there are lenders ready to help borrowers during and after bankruptcy. Instead of relying solely on your credit scores to determine your creditworthiness, they take an in-depth look at your situation. These lenders, called subprime lenders, are registered with certain special finance dealers and we want to help you find one.

AT Express auto loan, we’re on a mission to help borrowers with poor credit get the auto loans they need. Through our nationwide network of special financial concessions, we can find a dealer in your area to work with you. Start today by filling out our free auto loan application form.


About Eleanor Blackburn

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