What Happens to My Credit Score After Bankruptcy?
Filing for bankruptcy can be one of the most difficult financial decisions someone makes. While bankruptcy may offer meaningful relief from crushing debt, many people hesitate because they fear the impact on their credit score.
The truth is, bankruptcy can significantly lower your credit score in the short term, but it also provides a starting point to rebuild your financial life. How much your score drops, how long the bankruptcy appears on your credit report, and what you can do to begin repairing it are all important issues to consider.
Here at Todd E. Duffy PLLC, based in New York, New York, we’ve helped countless individuals file for Chapter 7 and Chapter 13 bankruptcy. Whether you’re considering filing or have already begun the process, our bankruptcy lawyer at Todd E. Duffy PLLC can explain your options and help you make informed decisions about your financial future.
How Bankruptcy Affects Your Credit Report
Bankruptcy doesn't just impact your finances — it also changes how lenders, landlords, and credit card companies view you. Credit scores are calculated using several factors, and bankruptcy touches almost all of them.
Type of Bankruptcy Filed
The most common types of personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7 typically discharges most unsecured debts, while Chapter 13 involves a repayment plan over time. From a credit score perspective, both types cause a significant drop, but how long they remain on your report differs.
Immediate Impact on Your Credit Score
The drop results from the inclusion of bankruptcy itself, the closing of existing credit lines, and missed or late payments before filing.
Accounts Included in Bankruptcy
Each account discharged or restructured through bankruptcy will be listed on your credit report as "included in bankruptcy." This status alerts potential creditors that those debts weren’t paid in full. While this is expected following bankruptcy, it reinforces the reason lenders may consider you high-risk in the near term.
How Long the Damage Lasts
While bankruptcy stays on your credit report for several years, its effect diminishes over time. The more time that passes since the bankruptcy, the less weight it carries in calculating your score.
Rebuilding Credit After Bankruptcy
The key to recovery is starting the rebuilding process immediately after the bankruptcy case concludes. Timely bill payments, reducing outstanding debt, and applying for new credit carefully all contribute to credit repair.
Positive Credit Behavior
Lenders and credit bureaus look for signs that your financial habits have changed. These include:
Paying all bills on time
Keeping credit card balances low
Avoiding new collections
Opening a secured credit card
Becoming an authorized user on a reliable person’s account
The sooner you demonstrate responsible behavior, the sooner your credit score will start to improve.
Steps to Rebuild Credit in New York, New York
Rebuilding after bankruptcy doesn’t happen overnight, but consistent effort can restore your financial health and eventually improve your credit score. Here are practical steps to begin that process in New York, New York.
Check Your Credit Reports
You can receive a free credit report from each of the three major bureaus — Equifax, Experian, and TransUnion. After bankruptcy, review your reports to confirm that discharged debts are correctly listed as “included in bankruptcy.” Mistakes are common, and incorrect information can drag your score down further.
Establish New Credit Accounts
Although it may seem counterintuitive, opening new accounts is essential to rebuilding credit. Start small:
Apply for a secured credit card backed by a deposit
Consider credit-builder loans from a local credit union
Use store cards that have easier approval requirements
Make sure to use these accounts sparingly and pay them in full every month.
Avoid Risky Financial Behavior
Avoid payday loans, high-interest credit cards, and co-signing loans. These actions can signal financial instability and can quickly undo any progress made after bankruptcy.
Stick to a Budget
Many people in New York, New York, fall into bankruptcy due to medical debt, job loss, or unexpected emergencies. Establishing a monthly budget can help you regain control. Keep fixed expenses below your monthly income, build a small emergency fund, and track spending habits closely.
How Future Lenders View Bankruptcy
Bankruptcy may seem like a permanent stain on your record, but it doesn’t automatically disqualify you from borrowing money forever.
Buying a Home After Bankruptcy
FHA and VA loans are often more lenient than conventional loans and may offer options for individuals with past bankruptcies.
Applying for Credit Cards and Loans
Credit card companies may initially only offer high-interest or secured cards, but better options become available as your score improves. Avoid applying for too many new accounts at once, which can lower your score and appear risky to lenders.
Common Myths About Credit Scores and Bankruptcy
"There is a lot of misinformation about what bankruptcy really does to your credit. A bankruptcy lawyer can clarify these issues and help separate fact from fiction. Here are a few common myths and the truth behind them.
Bankruptcy Will Ruin Your Credit Forever
While bankruptcy does hurt your credit in the short term, many people rebuild strong credit within a few years. Some individuals even find that their credit improves more quickly after bankruptcy than it would have if they continued missing payments.
You Can’t Get Approved for Anything After Bankruptcy
While approval may be more difficult immediately after filing, many lenders work with consumers recovering from bankruptcy. Mortgage lenders, credit card companies, and auto finance institutions all offer programs for people with a bankruptcy on record.
All Debts Are Wiped Out in Bankruptcy
Certain debts can’t be discharged, such as student loans, child support, and some tax obligations. These debts will remain on your report and must still be paid, regardless of the bankruptcy filing.
What a Bankruptcy Lawyer Can Do to Help
An experienced bankruptcy lawyer can provide critical support both before and after filing. At DuffyAmedeo LLP, their experienced attorneys take time to explain how bankruptcy may affect your credit and develop a plan for your financial recovery.
Help You Choose the Right Type of Bankruptcy
Whether you file for Chapter 7 or Chapter 13 can have different long-term effects on your credit. A bankruptcy lawyer can help you assess your income, assets, and goals to determine the best path forward.
Address Credit Report Errors
After your case is closed, any errors on your credit report should be corrected immediately. A bankruptcy lawyer can assist with identifying and disputing incorrect entries to help accelerate the credit repair process.
Offer Long-Term Credit Strategies
Rebuilding credit isn’t just about opening new accounts. Attorneys at DuffyAmedeo LLP also help clients develop budgets, avoid common pitfalls, and reestablish a positive credit history.
Frequently Asked Questions
How soon after bankruptcy can I start rebuilding my credit?
You can begin immediately after your case is discharged. Secured credit cards and credit-builder loans are good starting points.
Will my credit score improve while the bankruptcy is still on my report?
Yes. Even though the bankruptcy remains visible, your score can recover if you maintain responsible credit habits.
Is bankruptcy better for my credit than continuing to miss payments?
In many cases, yes. While both actions hurt your score, bankruptcy creates a clean slate and often allows your credit to recover faster than continuing with unpaid debts.
Can I remove bankruptcy from my credit report early?
No. While it can’t be removed early, its effect on your score weakens over time, especially if you build positive credit history.
How do I know if my credit report is accurate after bankruptcy?
You should request reports from the three major credit bureaus and review them closely. Any debt that was discharged should be marked as “included in bankruptcy” with a zero balance.
Contact Us Today
Our attorneys at Todd E. Duffy PLLC assist clients throughout New York, New York, with bankruptcy filings, credit repair strategies, and long-term financial planning. If you're concerned about how bankruptcy might affect your credit or what you can do to rebuild after filing, our experienced bankruptcy lawyers can help. Contact Todd E. Duffy PLLC today for bankruptcy guidance.
