Credit Scores and Bankruptcy

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Burton Law Office

Flowood, MS

I receive many questions about how filing a Ch. 7 or Ch. 13 bankruptcy petition will effect credit scores. The answer is not what you might expect. The fact that a person has filed bankruptcy will be listed on their credit report for a period of 10 years from the date of filing the bankruptcy petition. However, this does not mean that the person's credit score will go down or that it will be bad for the next 10 years. In fact, in many cases the credit score will improve by 100 points or more within a year of filing. The reason is your credit score is determined by a number of factors such as: debt to income ratio, and most importantly the number of late payments that you have made within the last 2 years. Therefore, by eliminating debt with the bankruptcy a person improves their debt to income ratio and this allows you to make all of your payments on time which is probably the most important factor in determining your credit score.

Another reason credit scores typically improve after the filing of a bankruptcy is because most people who file bankruptcy already have bad credit, so the credit score has nowhere to go but up.

So now you know a good bit about credit scores and bankruptcy. For further information read this article "Declaring Bankruptcy Can Improve Your Credit Score" in "Smart Money" by Aleksandra Todorova, January 22, 2007.

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