What happens to my credit score after I file for bankruptcy?

I get asked this question over and over, and I really don’t know.

I can tell you anecdotally what happened to my clients (and myself), and I can quote some other websites, but I don’t do credit repair, and this is not my speciality.

That being said, your credit will drop, and then it will go up.  ( I know, you’re hoping for a more technical formula).

Three stories, with the numbers I’ve seen:

1.  A friend of mine filed bankruptcy last year.  At the time of filing, she had a credit score of 585.  Exactly one year later, her credit score had jumped to 651.

2.  I filed a personal bankruptcy in 2007.  My credit score was a 535.  One year later, it was a 665.

3.  I had another client whose credit score was 420.  Seriously!  He was a negative black hole of credit.  When he entered a room, his mere presence sucked the credit scores out of other people.  Four months after filing bankruptcy, his credit was a 575.  It jumped, a lot, in 4 months.  credit score

Chapter 7

Basically, filing bankruptcy hurts your credit in the short term (kind of).  If you have a high credit score like a 750+, then your credit will drop to the mid 500s.  If you have a low credit score, like a 600, then your credit will drop to the mid 500s.  Either way, you’ll be in the mid 500s.

For the next three months, you are in credit limbo.  Nothing happens.  At month four of your chapter 7, you receive your discharge from the court, and your credit starts to rise.  If you try to finance a car during the 3 months the case is open, your interest rates are 25%+.  If you can wait until the discharge, they drop to around 15%.

It will be 2 years and four months until you can qualify for an FHA loan to buy a home after your bk, which gives you plenty of time to work on your score.

The bankruptcy will stay on your credit for at least 7 years, and, for the rest of your life, if a loan application ever asks you if you have filed bankruptcy, you must check that dreaded “yes” box.

Within 5 days of filing your bankruptcy, you’ll start getting 2-3 credit card applications in the mail, each week.  You’ll start getting 2+ car loan applications in the mail.  Most of these are awful, with set-up fees, secured balance plans, maintenance fees, etc.  The first card that charges no annual fee, no set-up fee, and requires no initial deposit, jump on it and start using it and paying it off each month.

As for other ways to build and repair your credit… this isn’t the post for that.  Just remember that it will initially hurt your credit, but after the initial shock, your credit score will start to rise.

Chapter 13

It’s a mystery wrapped in an enigma.  Your credit sits in limbo until you get your discharge at year 3 or year 5 of the case.