Bankruptcy and Your Credit Report

It’s important to be well informed about the process of filing for bankruptcy protection if you are considering it as an alternative for addressing your debt situation. Bankruptcy is a legal option available to consumers that are experiencing severe debt problems. Filing for bankruptcy is a significant decision that could have negative repercussions for you and your credit report for years to come. It should be considered as a last resort debt solution.

Impact on Your Credit Report

A bankruptcy is reported to credit bureaus and may remain on your credit report up to 10 years after the filing of the case. A potential lender that sees a bankruptcy as a part of a consumer’s credit report information will view it has an extremely negative item, worse than delinquencies or accounts in collections. It will have a negative effect on your credit score since a credit score is created from credit report information. Bankruptcy could potentially lower the credit score of someone with otherwise good credit in excess of 100 points.

There are certain debts that generally cannot be discharged during a bankruptcy such as taxes, student loans, child support, and alimony. It is important that you make these payments on time since any late payments could continue to be reported to credit bureaus and negatively impact your credit report information.

Life After Bankruptcy

Bankruptcy will make it more difficult for you to obtain credit, buy a home, and get insurance in the future. Credit that you are able to obtain will likely be from sub prime lenders that carry very high interest rates. Plain and simple, this translates to costing you more money for future credit transactions.

Then there is the negative stigma attached with filing bankruptcy. Many consumers find themselves embarrassed to admit that they don’t have the resources to pay their debts. The important thing is to learn from past mistakes and gain as much financial knowledge as you can to better equip yourself to deal with financial matters and maintain a positive credit report.

After bankruptcy, you have a fresh start without the burden of some or all of your debt. With time you can rebuild your credit history after bankruptcy by getting a small amount of credit and responsibly paying your bills on time. Consider obtaining a secured credit card as a way to begin to build a positive credit history. This type of credit card typically has low credit limits and requires you to place an amount at least equal to your credit line into a bank account.

Credit reports can be an important tool as you embark on the road to financial recovery. By regularly reviewing your credit report information you will be able to monitor your progress as you work towards improving your credit report and becoming more credit worthy. Once you have built positive credit history you should periodically check your credit report to help you stay on track. Just be aware that this will not happen overnight, it will take time, be patient and learn how to use your credit report to help avoid negative financial issues in the future.