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by Answerbag Staff on December 3rd, 2009

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How much does a chapter 7 reduce your credit score?

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  • by Ciele Edwards on December 3rd, 2009

    Answerbag Experts

    Great Answer

    Professionally Researched. (What's this?)

    If you are currently overwhelmed by debt, bankruptcy might seem like the right option for digging your way out. Before you file, however, you must consider the negative impact that a Chapter 7 bankruptcy will have on your credit score.

    The Facts

    A Chapter 7 bankruptcy is a form of bankruptcy that requires debtors to liquidate their assets in order to repay debts. In a Chapter 7 bankruptcy, many debts are discharged completely.

    Time Frame

    A Chapter 7 bankruptcy will appear on your credit report under "Public Records" for 10 years from the date you originally filed. The older a bankruptcy is, however, the less of an effect it has on your credit score.

    Features

    The amount your credit score will be reduced by your bankruptcy depends on how high your score was before you filed for bankruptcy. The higher your credit score, the more points a bankruptcy will cost you.

    Considerations

    Because your payment history on your debts is the largest single factor in calculating your credit score, filing for bankruptcy before you miss multiple payments to your creditors can help mitigate the damage your credit score will suffer from the bankruptcy.

    Effects

    You may find it difficult to be approved for credit soon after a bankruptcy appears on your credit file. This is partially because of a reduced credit score but also because borrowers who have filed for bankruptcy in the past are often considered by lenders to be a high risk no matter how high their credit score may be.

    Source:

    U.S. Courts: Chapter 7

    Cardreport: The Fair Credit Reporting Act (section 605)

    Resource:

    Lawyers.com: Bankruptcy FAQ

    Experian: Credit Score Basics

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