How does bankruptcy affect your credit?
Bankruptcy almost always has a negative impact on your credit. The question, however, remains: How significant is its impact? Bankruptcy serves as a legal proceeding you may choose when your debts have gone unpaid for a while. If considering filing for bankruptcy, you may want to weigh the potential effect it could have on your credit. Let’s learn more about bankruptcy before learning how to rebuild your credit and build better habits.
How does bankruptcy work?
Bankruptcy proceedings work as an agreed upon repayment system with built-in legal accountability. There are two ways to file for personal bankruptcy.
Chapter 7 bankruptcy
Filing Chapter 7 bankruptcy can discharge some debts through government liquidation of your assets. After your liquidated assets are counted against your unpaid debt, you’re responsible for paying the remainder of the debt. After your assets and the amount you could pay are deducted from the total, the remaining amount of unpaid debt may be discharged.
Chapter 13 bankruptcy
With Chapter 13, you can pay down your debt regularly based on your regular income. You can propose this plan in bankruptcy court where it’s decided by a judge.
What does filing for bankruptcy do to your credit?
If your credit report includes a bankruptcy filing, this can give credit lenders a negative impression of your credit behavior. That’s because your credit report is seen as an indication of your ability and willingness to manage your credit accounts on schedule. Therefore, bankruptcy can be seen as an indicator for creditors that your credit management and behavior didn’t cover your debts in the past. And because your credit report is used to calculate your credit score, a bankruptcy filing can lower your credit score. This could make it difficult for you to open new credit accounts or gain approval for loans with appealing rates.
How long does bankruptcy stay on your credit?
Filing for bankruptcy can stay on your credit report for many years. After filing Chapter 7, you can expect it to show on your credit report for about 10 years, whereas Chapter 13 tends to stay on your credit report for approximately seven years.
Rebuilding from poor credit vs. bankruptcy
The good news is that you can build better credit from a poor credit score and also during bankruptcy proceedings. Building better credit takes time when you’re using best practices and starting from a low point. If you decide to file, you can work toward building better credit habits during proceedings and while the filing appears on your credit report. Luckily, there are many ways to do it so you can find a path that suits your situation.
Ways to rebuild credit
Here are some credit-building techniques to help you on the road to better credit. You can improve your credit habits on your own and with helpful resources like Chase Credit Journey®. Here are some proven methods to consider whenever you’re ready to build better credit.
- Make timely payments. Payments that are on schedule and consistent can help build a positive credit history which feeds into your credit report.
- Check your credit score. With Chase Credit Journey®, you can check your credit score for free (and without affecting it), get notifications for changes in your credit report, and receive monthly activity summaries.
- Apply for a secured credit card. Though it may be a challenge to apply for a credit card, you can pay a deposit on a secured credit card to start building a better payment history by using it like a regular credit card and paying the bills on time. Please be aware that Chase does not offer secured cards, and you should check with your issuer to see if this could be an option for you.
- Find a co-signer. If you can find a willing co-signer with strong credit, they may be able to help you secure a loan. Consistently repaying this loan could give you the chance to establish good credit habits while helping boost your score over time. Always check that your issuer accepts co-signing as an option, many major issuers do not offer this option.
- Enroll in credit monitoring. You can stay updated on your credit report with activity alerts such as credit inquiries, delinquent or on-time payments and card accounts over their limit.
In summary
No matter how bankruptcy affects your credit, you can rebuild your credit with consistent action and some helpful insights from Chase Credit Journey®. If you choose not to file for bankruptcy, you can work on positive actions to improve your credit with the help of Chase Credit Journey® tools.
