Bankruptcy is a debtor’s last resort, and in some ways it is a pretty good last resort. Providing you follow the terms of the bankruptcy to the letter and prepare for it properly then it can help to give you a fresh start. However, it should not be seen as an easy way out, because it is most definitely not.
In fact, bankruptcy can have a hugely negative impact on your credit report, and as we have discussed many times in guides such as How to Pay off Debt Quickly, What Affects my Credit Score and No Credit Check Loans, that score is one of the most important numbers on any citizen’s record.
To show you just what we mean, here are some ways that bankruptcy can affect your credit score.
How Does Bankruptcy Affect my Credit Score?
A bankruptcy can have a hugely negative impact on your credit score. But at the same time, avoiding this inevitability and letting your debts default can have an even greater negative impact. The difference is that a default and unpaid debts can be cleared quicker and will leave your credit report quicker than a bankruptcy will.
Typically a bankruptcy will knock around 200 points off your score. This is enough to turn a decent rating into a bad one, dropping one that is rated as “fair” into one rated as “poor”. It doesn’t seem like a lot and it’s less than many people assume, but the impact that 200 points can have on your credit score is substantial, especially if your score is anywhere from “poor” to the lower end of “good”.
How Long Does Bankruptcy Stay on my Credit Report?
A bankruptcy is public record, which means that if someone wants to find out about it they can. It will also remain on your credit score for 10 years and is pretty much the worse red mark that you can have against your score.
But there is some good news, so don’t worry just yet and keep reading to learn more about how bankruptcy affects your credit score.
How Long After Bankruptcy Can I Buy a House?
You should be able to find financing on the purchase of a home just 2 years after being discharged from a bankruptcy, and in many cases you can do it after just one year. This is the case with both chapter 13 and chapter 7 bankruptcy filings, but individual circumstances will play a role.
How Long to Buy a Car?
As soon as your debts disappear then you just need to wait for 60 days, after which you should be able to finance a car loan. Of course, your credit score will have taken a hit by that point and you will struggle to find a great deal (or any deal at all if your credit score has dropped right down) but in theory you should be able to apply and stand a good chance of being accepted.
If you score is very poor at this point, take a look at our guide to No Credit Auto Loans.
How Long to Take out a Loan?
You will need to wait for a minimum of 2 years after the discharge date before being accepted for a loan, and as your credit score will have taken a hit your options may be limited.
How to Rebuild Credit After Bankruptcy
A bankruptcy is not the end of the world. Quite the opposite in fact, it is a new beginning, a way for you to emerge from the red and into the black. It can be soul destroying to have to settle for a bankruptcy when you have battled with your debts for years, but rather than seeing it as a cop-out and the end of the road, you need to see it as the break you have been waiting for.
Your credit score will take a hit and that bankruptcy will remain for a decade, but that doesn’t mean that you need to wait ten years before you can start living like a normal, credit-hungry member of society. You can still get loans, mortgages and credit cards, and it is against the law for an employer to sack you or refuse to hire you because of a bankruptcy filing.
Just take it easy, know that you have time and that this is a good thing, not a bad thing. Here are some tips to help you build credit after a bankruptcy:
- Use prepaid cards that lead to actual lines of credit.
- Don’t be suckered into payday loans.
- Try credit unions instead of no credit loans.
- Seek help as soon as things begin to get out of control.
- Don’t live beyond your means.
- Sell what you don’t need (see our guide to Apps for Selling Your Stuff).
Can I Get a Job with Bankruptcy on my Record?
Employers have been known to take credit reports into account in the past and in some cases it is understandable. For instance, you are considered a greater risk in security and financial roles if you have a bad credit score, because debt leads to desperation.
Bankruptcy, therefore, could be seen as the worst possible thing you can have on your credit report as far as your career is concerned, but fortunately this is not the case. It is actually against the law for an employer to refuse you a job because you have been declared bankruptcy. That’s the good news. The bad news is that they may still refuse you the job because you have been declared bankrupt and simply tell you they did it for another reason.
How to Stop Bankruptcy
Bankruptcy can be a good option to have, but as mentioned already, it’s not something you want to jump at because it’s not something you can keep doing repeatedly whenever you’re in trouble. So, look at other options first to see if there is an alternative. Be sure to read our guides below to get through this tough time: