Question: I am considering filing for bankruptcy but I am concerned how long my credit score will be affected. So my question is, to what extent will my credit score be affected after a bankruptcy.
Answer: There are many different kinds of bankruptcies and each type affects your credit score and credit worthiness in different ways. The most common form of consumer bankruptcy is called a Chapter 7 which is a complete discharge of all dischargeable debt. In a Chapter 7 bankruptcy, your credit score usually goes up immediately after the discharge. This is because your debt to equity ration is no longer negative as your debt has been discharged. However, creditors evaluate not only your credit score, they also ascertain whether you have filed for bankruptcy in the past seven years. Usually, a prior bankrupcty during this seven year period will cause you to be offered a higher interest rate typically 1% to 2%. The negative of receiving a higher interest rate is significantly off set by the fact that a Chapter 7 discharge eliminates your debt and permits you to have a new fresh start. In any event, if you are focused solely on your credit score, to answer your question, after a bankruptcy, the typical credit score goes up and improves.