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How Bankruptcy Affects Credit Scores

Credit scores are important. Credit scores affect how much interest a future creditor will charge you and whether you will be given a loan. People want to keep their credit scores high and they worry that filing bankruptcy will lower their credit score.

Most people think about filing bankruptcy because they are already behind on their monthly bills or because they know they will not be able to continue to pay them.  In these situations, your credit report already has — or will have — remarks and notations about late (“delinquent”) payments.  These notes will stay on your credit report for seven years. If you are being sued by a creditor, if a debt has been turned over to a collection agency, if your car has been repossessed already, or if your mortgage lender has started the foreclosure process – these problems will most likely show up on your credit report and lower your credit score.  Something else that lowers your credit score is the total amount of debt you owe.

When you file bankruptcy, several changes are made to your credit report. Your debts that were listed in the bankruptcy should be noted as being included in a bankruptcy (all of your debts should have been listed in the bankruptcy). Because generally these debts are noted as being included in a bankruptcy, your total amount of outstanding debt goes down significantly. This drop in outstanding debt actually works to increase your credit score. However, as you can expect, the fact that you filed bankruptcy is listed — and this definitely does lower your credit score. The combined result right after you file bankruptcy is that your credit score is lowered. However, as time goes on, the effect of the bankruptcy filing on your credit score is less and less. As time passes, you will find that your credit score has risen quite a bit and will, in many cases, actually get better than it was when you filed the bankruptcy case within a year or two.

Other aspects of your financial situation after you file bankruptcy also will have a significant effect on how your credit score improves. For example, if later on, you are able to get a car loan, your timely payments on that loan will improve your credit score.

A Chapter 7 bankruptcy case will stay on your credit report for ten years. The three major credit reporting agencies – Experian, Equifax, and TransUnion – say they will take a Chapter 13 off after seven years from the beginning of the case, although by law bankruptcy cases can stay on for ten years.

The Federal Trade Commission (FTC) has an informative booklet entitled Building A Better Credit Report, that we recommend.

How to get a free credit report – with no tricks

Many private companies offer “free” credit reports and hope that you will give them your personal information. Not only do they get your personal information, but often they also charge you for credit protection schemes. Do not go to any of these websites.

Only use This website was set up by the three major credit reporting agencies – Experian, Equifax, and TransUnion – to provide free credit reports once a year to everyone, because many years ago the Federal Trade Commission made them do that. This site also offers optional items for fees, but you can click the boxes on the pages that say something like “no, I just want my free credit report.”

Regional Application

This information is only applicable to people who live in Santa Clara County, California, USA. In the USA, the bankruptcy law is a federal law that applies in all states. The property that can be protected (“exempted”) by people who file bankruptcy is prescribed by state law, however. Bankruptcy, property, and exemption law is further affected by court decisions that apply in certain geographic areas. If you live in the USA, but are outside of Santa Clara County, please consult an attorney in your own area.

General Information

The information contained in this web site is general in nature. Bankruptcy law is extremely complex and it is easy to misunderstand how a general description might or might not apply to you personally. In order to find out how this information applies to you personally, you will need to discuss it in detail with one of our attorneys.

Debt Relief Agency

Federal law states that attorneys who represent people in bankruptcy cases are “debt relief agencies.” Gold and Hammes represents people (and small businesses) in bankruptcy – in fact, that is the only type of law we practice. Therefore, Gold and Hammes is a debt relief agency.