Banner Ad

Home / Credit / The Effects of Bankruptcy on Credit


Effects of Credit on BankruptcyBankruptcy is a last resort, but one that millions of Americans are forced to turn to every year. The scary part is that consumers often begin this process without understanding the full impact it will have on credit. Learning what filing for bankruptcy will look like for you is a way to start taking control. Bankruptcy will affect your credit by limiting the credit available to you, lowering your credit score and remaining on your credit report for many years.

Credit Availability

In 2012, there were 1,221,091 bankruptcy filings in the United States, meaning that many people suffered a hit on their credit scores that affects their ability to qualify for loans, mortgages and credit cards, and may even possibly keep them from being hired by employers that complete credit checks. When consumers with low credit scores do receive approval for items, like car insurance or auto loans, the interest rates and fees are significantly higher than before bankruptcy. Overcoming these obstacles will require a change in spending, borrowing and saving habits that can begin to raise your credit

Hundreds of Points

Depending on factors such as the number and balance of delinquent accounts, and your credit score prior to filing for bankruptcy, your credit score could fall several hundred points after bankruptcy. Another factor that will affect this number is what type of bankruptcy you file for.

Whether you file for Chapter 7 or Chapter 13 bankruptcy, the most common types of bankruptcies, you can typically expect your credit score to decline between 130 and 240 points. It will take longer for those who have higher starting scores to recover from bankruptcy.

Starting score

Estimated score after bankruptcy

Years to recover








While your credit score could begin improving based on credit activity, your credit report will still show evidence of the bankruptcy for seven years for Chapter 13 and 10 years for Chapter 7. Fortunately, different creditors give bankruptcies varying weight in making lending decisions, and you may find yourself eligible for a mortgage after as few as two years.

While the consequences of bankruptcy may be overwhelming, the step can be a bridge toward rebuilding credit and entering into an intentional plan for maintaining financial responsibilities.

Alanna Ritchie is a content writer for, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.


About the author: Guest Contributor


From time to time, we publish posts from guest contributors. To inquire about guest posting guidelines, please contact us at


Recent posts in Credit



Leave a Comment

Your email address will not be published. Required fields are marked *

CommentLuv badge