Filing for bankruptcy can grant you some much-needed reprieve when debts and payment obligations become too overwhelming for you to handle. There are different types of bankruptcy, but each serves to provide time during which you can get back on your feet without worrying about the actions of creditors.
Though the short-term effects of bankruptcy can be a great boon for you, it is also important to consider the long-term impact that bankruptcy will have on your finances. Namely, you should understand the relationship between bankruptcy and your credit score.
The effect of bankruptcy on your credit score
Credit scores are a reflection of an individual’s borrowing reliability and payment history. A bankruptcy filing can mark you as a risky borrower in the eyes of lenders and might even lower your credit score by over 150 points all at once. Experian goes on to explain that a Chapter 7 bankruptcy will remain on your credit report and affect your score for 10 years, while Chapter 13 bankruptcy remains on record for seven years.
Your options for recovering your credit score
Though it can be dismaying to emerge from bankruptcy with a poor credit score, you have options for reliably building up credit again. The fundamental requirements are that you stick to a budget and pay future bills on time. Using a secured credit card can also be a strong option when most providers might hesitate to give you a standard card.
Filing for bankruptcy is very likely to affect your credit score to a large degree, but the significance of this outcome can vary case by case. Bankruptcy can give you the financial second chance you need in a difficult time, after which you can slowly rebuild your credit through good habits.