How Will Bankruptcy Affect My Credit?

Wed, Aug 10, 2011

Bankruptcy, General Legal Issues

Our tough economic times have made bankruptcy very prevalent in the state of Florida. Bankruptcy often occurs because of unemployment, underemployment, health issues, divorce, or other life crises. Bankruptcy makes everyone apprehensive, partly because there are so many things to consider. It is wise to consult with an experienced bankruptcy attorney to make sure you have considered all your options and answered all of your questions. One of the things that SmithLaw is often asked is, “How will a bankruptcy affect my credit?”

Bankruptcy will affect your credit. However, sometimes people are surprised to learn it doesn’t affect it as much as they might think. This is especially true for people who already have a low credit score due to late payments, missed payments, loan defaults, foreclosures, or other detrimental activity on their credit report. At first the bankruptcy will drive your FICO credit score down and show you to be a lending risk for a little while. But then, your credit score will probably rise from where it was before the bankruptcy. This is because you will no longer have active debt on your report, making you a better risk. If your credit rating was good before the bankruptcy, your score will drop significantly, but should recover well over time.

A bankruptcy will stay on your credit report for 7 to 10 years. While this is a long time to have such a blight on your record, it does not mean you will not be able to get any future credit extended to you. Many banks, lending institutions, and other creditors will consider giving you credit after some time has passed—but usually with higher interest rates. In fact, some creditors will find you to be a suitable candidate for certain types of loans or credit because you will be unable to file for bankruptcy for a number of years. But this is not a rule of thumb and depends on each individual lender and the circumstances surrounding the credit. After two or three years, with good credit behavior, you should be showing a pretty great credit score.

You will need to be vigilant about rebuilding your credit. It is important to not let your financial circumstances get into another state of disrepair. The Federal Trade Commission has a good guide for helping you understand your credit and how to rebuild it on their site:


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