Karl Utermohlen

How a Bankruptcy Discharge Can Still Affect Your Credit Score Most of us have suffered financial hardship at some point in our lives, leaving us with no out other than filing for bankruptcy and hoping a court grants us a discharge. Such a case would relieve you from some financial obligations, but there are certain stipulations attached to a bankruptcy discharge that could have a negative effect on your credit score. What a bankruptcy discharge consists of A discharge is an order filed by a court to prevent creditor from collecting debt from a consumer. Such a move prohibits the creditor from reaching out to the consumer to collect as the consumer would no longer be liable for the debt under law. There’s a number of debts that can be discharged under bankruptcy laws, including personal loans, medical bills, credit card debt, business debts, leases, vehicular accident claims, three-year-old tax penalties and more. However, there are other charges that cannot be discharged such as student loans, back taxes, alimony and child support. Bankruptcy will undoubtedly have an effect on your credit score, but this impact is different from person to person as credit scoring professionals take a look at the magnitude of each bankruptcy and deduct points off your score accordingly. The effect it has on your credit score If you file for Chapter 7 bankruptcy, the filing may impact your credit for 10 years, while a Chapter 13 bankruptcy could impact your credit score for seven years. This means that although your bankruptcy discharge will be added to your credit history, late and failed payments will still appear on your report for the aforementioned time span. If you do file for bankruptcy, your FICO credit score can fall by up to 200 points if you have good credit (700 points or higher). Alternately, a credit score below 700 may be reduced by 130 to 150 points in some cases. What this means in a more tangible setting is that your application for that lease, car loan or mortgage may be negatively impacted by your history of failed payments. Nevertheless, there are ways to build your credit back up if you take hold of your fiscal responsibilities and follow a few golden rules moving forward. How to build your credit back up Once you’ve got the bankruptcy discharge behind you, start from scratch by getting a new starter line of credit, meaning a secured credit card or credit builder loan to improve your payment history. It is essential that you make payments on time to keep your debt levels in check. Look up your credit online throughout the process to see your progress as only a few months of being responsible with your finances can help you rebuild your score. Make an effort to find other ways to improve your credit with a professional credit repair business. Although some creditors may see consumers with a bankruptcy discharge history in a negative light, the fact remains that many others are willing to give a second chance to those with a more troubled debt history. Know that you will likely be responsible for complying with a higher interest rate if your debt or lease request is accepted, which is a small price to pay for replenishing your credit. Also, make sure that your bankruptcy discharge and any other old debt hardships are removed from your credit after seven or 10 years, depending on how you filed for bankruptcy. Ultimately, if you follow these steps, you might have a score of 700 or higher within four or five years of applying these tools.