If you are considering bankruptcy to get control of debt you cannot afford, one of your foremost concerns is probably how filing will affect your FICO credit score. Will you be able to get a mortgage or access funds you need in the future?
Although a bankruptcy filing will make a dent in your score, it also gives you an opportunity to start fresh with your finances and rebuild your credit. In fact, late payments and collection actions associated with unpayable debt often affect your credit score as much or more than bankruptcy.
Expected score decrease
If you still have a credit score of over 700 even though you are struggling with debt, you can expect to see about a 200-point drop after filing for bankruptcy. If your score has already dropped to 680 or below, your score will likely drop about 150 points. The exact amount of the decline will depend on your specific situation.
When you file for chapter 7 bankruptcy, it stays on your credit report for up to 10 years. Discharged debt remains on your report for about seven years after the discharge date. When you file for chapter 13 bankruptcy, the filing remains on your report for seven years. However, debts are not discharged until after the end of your five-to-seven-year payment plan, so they will remain longer than the bankruptcy filing itself.
Steps to rebuilding credit
Although the bankruptcy will be on your credit report for at least seven years, you should be able to access new credit much sooner. Apply for a secured credit card and make payments on time to get your score back on track.
Most people who file for bankruptcy can qualify for a mortgage within a few years. On average, you have to wait about two years after your discharge to successfully obtain a home loan, provided you work to rebuild credit during that time.