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What impact does personal bankruptcy have on a credit report?

On Behalf of | Jul 9, 2024 | Bankruptcy |

Many personal opportunities depend on someone’s credit history. Obviously, someone’s eligibility for a mortgage or the best terms on a car loan depends on their credit history. Lenders look at someone’s credit history and consider their overall credit score when determining if someone is eligible for a loan and what terms the company may offer.

Credit scores can also affect housing. Landlords look not just at eviction history but someone’s history paying their other bills when deciding whether to rent to them or not. Employers even pull credit reports when deciding who to promote or hire for a sought-after position within the company.

Late and missed payments, creditor judgments and bankruptcies all turn up on someone’s credit report during a check of their financial history. How much of an impact does a bankruptcy filing tend to have on someone’s credit score and overall credit report?

Credit scores drop during and after bankruptcy

In many ways, bankruptcy is the most serious blemish that someone could add to their credit report. A recent bankruptcy filing can drag someone’s score down by as much as 200 points in some cases. They can go from having standard or above-average credit to a very negative credit situation in one day when they file.

That being said, the negative impact of the bankruptcy diminishes slightly every month. The older the bankruptcy becomes, the less weight lenders and other parties apply to the bankruptcy. It is also worth noting that the single defect caused by a bankruptcy can be much less damaging than multiple accounts in bad standing and judgments from different creditors.

Credit reports only show bankruptcy for so long

The good news is that with each month of on-time payments, a person who previously filed for bankruptcy improves their circumstances. Eventually, their credit score might be as good as it was before they filed or even higher.

The record of the bankruptcy eventually falls off of their report and is no longer visible to others. If someone filed for a Chapter 7 bankruptcy, their discharge shows up for 10 years after they complete the process. Those who complete a Chapter 13 bankruptcy typically have record of the bankruptcy on their report for seven years after their discharge.

Understanding the impact a bankruptcy filing could have on someone’s credit score and credit report can give people greater confidence when they decide to file. Although bankruptcy is a substantial blemish, it is not a permanent negative mark on someone’s credit report.

photo of attorney R. Richard Croce