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How Will Chapter 7 Bankruptcy Affect My Credit?


How Bankruptcy Saved My Family And How It May Save Yours

Generally, filing for Chapter 7 bankruptcy is bad for your credit. Securing loans and credit cards may be difficult as potential lenders will be wary of an individual with troubled payment history. However, Chapter 7 bankruptcy is not all doom and gloom since your credit improves with time. With various tips for reestablishing credit after Chapter 7 bankruptcy, you can always get your finances back on track despite filing for bankruptcy.

Most people turn to Chapter 7 bankruptcy whenever they face financial hardship, which could arise from unforeseeable events like job losses and medical issues. However, filing for Chapter 7 bankruptcy is a huge financial decision – and one that affects your credit as well. Most people consider it a last resort, especially those who wish to cushion their credit score against further deterioration. Regardless of the rate at which one’s unsecured debt and medical bills pile up, filing for Chapter 7 bankruptcy will do no good for your credit score.

Chapter 7 Bankruptcy and Your Credit Score

Your credit score determines how easily you can access loans and credit cards. It determines whether you can get one, the amount, and the interest rate that comes with the loans. In the case of a poor credit score, individuals can secure loans, but lenders will most likely impose higher interest rates. On the other hand, a good credit score will easily secure you a loan at favorable terms.


According to credit scoring models like FICO and VantageScore, filing for bankruptcy is considered a tragedy to your credit score. As long as a Chapter 7 bankruptcy filing appears on your credit report, your credit score will continue to hurt. However, the impact of Chapter 7 bankruptcy reduces every year, especially with better credit habits. Therefore, individuals may experience a drastic drop in their credit score as soon as they file for Chapter 7 bankruptcy, and a better one at the end of the second or third year.

How good or bad your credit score was before filing for Chapter 7 bankruptcy also determines how badly the score will be affected. Individuals with a good credit score will most likely experience a greater dip in their score than another with an already poor score. If you have a credit score of 750 (very good), you will see a deduction of 200-240 points upon filing for Chapter 7 bankruptcy. With a 690 score, you are bound to lose 130-150 points.

The impact of filing Chapter 7 bankruptcy also depends on the number of accounts in your bankruptcy filing. Keep in mind that filing for Chapter 7 bankruptcy doesn’t wipe out all your debt; non-dischargeable debts like student loans, alimony, child support, and tax debts won’t be “forgiven” in bankruptcy. With fewer accounts in your Chapter 7 bankruptcy filing, your credit score will suffer a less negative impact.

Chapter 7 and Your Credit Report

A Chapter 7 filing will appear on your credit report for 10 years. Accounts included in the Chapter 7 bankruptcy are, however, deleted from the credit report before that. Debts or accounts that came due and failed to be brought current before filing for bankruptcy are deleted after 7 years. Filing for Chapter 7 bankruptcy doesn’t change the original delinquency date, and neither does it extend the duration that the account appears on the credit report

Removing Chapter 7 Bankruptcy Earlier

A legitimate bankruptcy can be hard to remove before the 10-year period is over. However, it is not impossible, especially if you can prove inconsistencies and errors in the report. Working with a Florida bankruptcy lawyer can also help you establish whether removing your Chapter 7 bankruptcy earlier is possible and whether it is worth the hassle.

In cases of fraudulent bankruptcies, individuals have a chance of removing the bankruptcy from their credit record before 10 years are over. Fraudulent bankruptcies may occur due to clerical errors or identity theft and can be tracked down through the Public Access to Court Electronic Records (PACER) system. Bogus Chapter 7 bankruptcies can be disputed with each credit bureau by drafting a dispute letter and attaching a statement from the court of record.

Reestablishing Credit after Chapter 7 Bankruptcy

While filing for Chapter 7 bankruptcy means no good to your credit, it is not always doom and gloom. Your credit will come good as the years go by, especially if you practice good credit habits. Here are some tips to help you improve your credit post-bankruptcy:

Make Prompt Debt Repayment

Payment history is crucial in determining your credit score. Therefore, it impacts your credit the most, and timely repayment means that your credit will improve even after filing for Chapter 7 bankruptcy. For accounts that were not included in the bankruptcy, such as a home loan, car loan, or student loan, it is vital that you keep them current as it shows potential lenders that you are a trustworthy borrower.

Stay In Control of Your Bills

Timely payment of bills like cable and electricity bills helps you avoid overdue fines and collection activities on accounts, which can hurt your credit. On the other hand, on-time payments continually boost your credit score, which is good for your credit.

Apply For Secured Credit Cards

Having open credit accounts is vital to rebuilding your credit. However, securing new loans and credit cards is never easy after filing for Chapter 7 bankruptcy. Applying for a secured credit card is a simple way to get started with your credit rebuild, as you don’t need a good credit score to qualify. All you need is a deposit that serves as security if you fail to make payments on the account.

Save For Emergencies

With no money in savings, your finances can easily be thrown off-balance by unexpected expenses. You may be tempted into skipping bill payments or taking on new debt. While you may not have enough money to rack up savings, you can devise a plan to ensure that you always have some money set apart for emergencies. A great way of doing this is by setting aside some cash off every paycheck.

Consider a Credit-Builder Loan

While you might be nervous about applying for a loan after filing for Chapter 7 bankruptcy, you may want to consider a credit-builder loan if you are looking to reestablish your credit. Individuals are required to make monthly deposits into a savings account managed by the lender. The money is made available to the individual at the end of the payment term, normally one to two years. These are common with local credit unions and can help you mend your credit after filing for Chapter 7 bankruptcy.

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