How will Bankruptcy Affect my Credit?

People often believe that filing for bankruptcy will ruin their credit for the rest of their life. That is not true. There is a lot of misinformation about how bankruptcy will affect a person’s credit rating or credit score. Under Fair Credit Reporting Act, the bankruptcy case will appear on your credit report for ten years. Accounts included in bankruptcy will be listed as “Included in Bankruptcy” for seven years.

However, the impact of these items on your credit report have a temporary impact. The effect of any negative item on your credit report will diminish over time. In the short run, bankruptcy will significantly lower your credit score and prevent you from getting credit on favorable terms. However, about two years after filing for bankruptcy, most consumers are able to seek credit on normal terms. This is because they have discharged most or all of their debt, and are now living on a budget they can afford.

Filing bankruptcy has serious and long lasting consequences, including how it affects your credit, your credit score, and your credit rating. However, the affect on your credit score is temporary and is often the lesser of two evils when compared to defaulting on accounts. This article discusses the various ways in which filing for bankruptcy can affect your credit.

Public Records.

When you file a petition for bankruptcy, it is a public record, that can be accessed by the court, by creditors, and by companies that compile public records information. When you obtain a discharge from the bankruptcy judge, it also becomes a public record. The discharge and any orders or judgments that arise out of the bankruptcy case will appear in court records, and may appear in online or electronic records. The judgment will also appear on your credit reports for ten years.

Accounts Discharged in Bankruptcy.

Accounts that are included in bankruptcy must be updated by the creditors to be reported as zero balance, and zero past due. If the account was in arrears prior to the filing of the bankruptcy, or if it was charge off, that information may or may not continue to appear. Any derogatory information, including “Included in Bankruptcy” will appear on your credit report for seven years. You should check your credit reports regularly to ensure that the accounts are being reported accurately.

Will I Qualify for Credit after Bankruptcy.

Yes. In fact, when you get your discharge from the bankruptcy court, you will probably start receiving new credit applications almost immediately. This is because you will have little or no debt, and because you will not be able to discharge new debt for a significant period of time. However, you should be very cautious about accepting this initial wave of credit offers. These offers will often be on unfavorable terms, including low credit limits, high interest rates, and other charges and fees.

Within about two years, your credit rating will begin to climb back up, and the bankruptcy itself will be less of a factor in your credit score than your credit history for the last two years. If you faithfully pay your bills on time (especially any mortgage payments), you can expect your credit score to reflect that, and you will likely qualify for credit on market terms, as opposed to paying a penalty just because you filed for bankruptcy.

Comparison to Not Filing for Bankruptcy.

While the effect of filing bankruptcy is real and significant, it must be weighed against the outcome of not filing. If you decide not to file for bankruptcy, you must continue paying your creditors. If you fail to pay your obligations on time, one or more of these accounts may be reported to the credit reporting agencies as delinquent, or as a charge off. The accounts may also be assigned to a collection agency, which will result in a second derogatory account or “tradeline” appearing on your credit. If the creditor decides to sue you, that lawsuit may become a judgment, which like the bankruptcy court judgment, may remain on your credit report for ten years.


Many interested parties may wish you to believe that if you file bankruptcy, you will never qualify for credit again. That is not true. Bankruptcy is a significant life event, and will have a major impact on your credit for a significant amount of time. However, it will not ruin you, and you will be able to obtain credit again on reasonable terms. Additionally, the alternative to bankruptcy may have just as negative and long-lasting effect.

This information is presented by the Bankruptcy Practice Group of Baxter & Baxter, LLP. The Portland, Oregon bankruptcy attorneys and Vancouver WA bankruptcy lawyers of the Bankruptcy Practice Group represent individuals in Chapter 7 and Chapter 13 bankruptcies. We offer a free initial phone consultation. We can stop collection calls from debt collectors and home foreclosures. We can advise consumers whether to file for bankruptcy, and what form of bankruptcy to file.