by Brandy Abalos

Being overwhelmed with debt can be stressful, but there is a way out through bankruptcy. However, it’s crucial to know the positives and negatives of filing for bankruptcy. It may initially decrease your credit score, but taking action to repair it quickly can build a solid credit rating.

How Does Bankruptcy Affect Your Credit Score?

Bankruptcy will likely decrease your credit score, but it’s impossible to know precisely how much your score will dip. Bankruptcy has a more significant effect on high credit scores than it does on scores that are already low. If you have several blemishes on your credit report, bankruptcy may have little to no effect because you will remove  some late payments and overdue accounts.

According to, if your credit score is between 670 and 850, which is considered good, 740-799 (very good) or 800-850 (excellent), your score may drop an average of 200 points. Very few people facing bankruptcy have scores this high. If your credit score is between 300 and 669, which is considered poor or 580-669 (fair), your score may drop around 130 to 150 points. Bankruptcy will likely drop you to a poor or fair credit rating, regardless of where you started. However, it is uncommon to have a credit score of lower than 500 even after filing for bankruptcy.

What Happens to Debts on Your Credit Report When You File for Bankruptcy?

Your credit report will show that you currently have a pending bankruptcy filing when you file bankruptcy. Completing a Chapter 7 bankruptcy report can take months. Finishing a payment plan for a Chapter 13 bankruptcy takes three to five years. Bankruptcy shows up on your credit report as a notice to potential creditors during that time. Bankruptcy will eventually not show up on your credit report. A Chapter 7 will be visible on your report for 10years from the filing date. A Chapter 13 will appear for 7years after the filing date.

What Happens to Your Debts on Your Credit Report When You File Bankruptcy?

When you include a debit account in your bankruptcy, it remains on your credit report. However, late payments and overdrafts do not count towards your score. Instead, your report acknowledges the debt is included in your bankruptcy. Derogatory accounts are deleted within seven years of their original delinquency dates, so they are often removed from your credit report before your bankruptcy.

How to Repair Credit After a Bankruptcy

Filing for bankruptcy can be an effective method to start with a clean financial slate. You may be worried about obtaining car loans, mortgages and other credit after bankruptcy. You will have an opportunity to do these things quickly. In fact, within 12 to 18 months, your credit may return to its previous score or be even higher.

Ways to help your credit score bounce back after bankruptcy include:

  • Make payments on existing accounts, including utilities, on time.
  • Open new credit accounts to begin establishing your history. Secured credit cards are a good option.
  • Become an authorized user on a trusted individual’s account.
  • Ask for higher credit limits on cards you have reaffirmed or kept and not included in your bankruptcy.
  • Dispute credit report errors, especially if accounts were not reported discharged through bankruptcy. Consider working closely with a credit repair agency or consumer lawyer. However, you should thoroughly vet any company that you work with to ensure they are legitimate. Look up reviews for them and see if they have complaints with the Better Business Bureau.
  • Within a year or shortly after that, you will be eligible for car loans, mortgages and more that can continue to build your credit score after a bankruptcy.

Don’t Give Up If You’re In Debt and Need to File for Bankruptcy

The calls and threats that you receive from creditors can be scary and stressful. All of that can go away when you file for bankruptcy. However, some people avoid bankruptcy because they don’t know how or when they can recover from it. In reality, bankruptcy can often have a more positive impact than negative on your financial situation.