There’s a reason why bankruptcy is considered to be a financial Armageddon. It’s a last resort move used to clear debts when nothing else seems to be possible. While it does help to achieve that purpose, it has extremely damaging consequences for your credit history.

Here’s how filing bankruptcy affects your credit score.  

It Causes a Slump in Your Credit Points

According to FICO, 35% of your credit score depends on your payment history. Declaring bankruptcy causes your score to drop significantly. This drop is even greater for individuals who’ve had a good credit history as their score may fall as much as 200 points down all of a sudden. In contrast, individuals who already have an inconsistent payment history may not see as huge a drop because of their existing turbulent records.

This isn’t to say that having inconsistent payments helps you during bankruptcy in any way. Both situations are damaging and negatively impact your credit history.

It Requires Extensive Credit Rebuilding

Here’s the thing; bankruptcy is more of a tradeoff than a guaranteed solution. Sure, it wipes away your debt or reduces it so that you can afford to pay it, but it also does something else. It lets the world know that you’re a credit risk, making it very difficult for you to apply for loans in the future.

What with the drop in your credit score and the label of “credit risk” attached, you’ll need to work very hard and for quite long to rebuild your credit. You won’t immediately qualify for the best credit offers and loans. It’ll be a slow and long process to rebuild your score, similar to how it was when you first started out with a credit account. In fact, it can take several years for you to get past the consequences of declaring bankruptcy. Your relationship with the lender will be of the utmost importance and can make or break your chances of rebuilding credit.

It Stays on your Credit Report

Like we mentioned above, getting past the damage caused by bankruptcy can take several years. The act of bankruptcy stays on your credit report for a long time, affecting your credit history. This does, however, depend on the type of bankruptcy you filed for.

If you opted for Chapter 7 bankruptcy (also referred to as liquidation bankruptcy), it’ll show on your report for 10 years from the date you filed for it. For Chapter 13 bankruptcy or wage earner’s bankruptcy, your credit report will show the instance for at least 7 years from the filing date. In either case, the effects are long-term and last for years after the instance has occurred.

Recovering All Investments, Inc helps prevent the need to file for bankruptcy, and also offers professional credit repair programs and mortgage assistance programs to help individuals restore their financial status.

Get in touch with our team in Texas today for more details of our services.