Bankruptcy will take a heavy toll on your credit score, at least initially. Most people report a three-digit drop in their credit score after filing, even if they remove a large collection of credit blemishes and replace them with one major negative mark commemorating their bankruptcy discharge.
Those filing will see an immediate change in their available credit. The lenders providing their revolving lines of credit will typically close those accounts, and they will need to either renegotiate or reaffirm their secured loans if they want to retain the collateral property used to secure the financing.
Even if you already own your own home, you may worry that a bankruptcy on your financial record will prevent you from refinancing your existing mortgage or buying a different home later. Can you qualify for a mortgage again after you file for bankruptcy?
Financing becomes accessible after a few years
After your bankruptcy discharge, you will likely only receive small, sub-optimal credit offers in the first few years. However, if you focus on rebuilding your credit responsibly, your score will slowly increase as time passes.
If you obtain a new credit card within a few months of your discharge and pay the balance in full every month, you may be able to qualify for larger loans within two or three years of your discharge. You may be able to obtain vehicle financing and even a mortgage.
However, you can expect to qualify for lower-quality financial instruments when your bankruptcy is still fresh. The longer you spend rebuilding your credit before you apply for a mortgage, the easier it will be for you to secure a loan with a better interest rate and good terms. Eventually, lenders won’t even be able to see the bankruptcy.
Like any other blemish on your credit report, bankruptcy will eventually come off of your credit report. However, at least in the case of a Chapter 7 filing, the credit bureaus can report your discharge for 10 years as opposed to the seven-year reporting limit usually enforced for standard accounts and past due payments. The best credit opportunities will become available to you when there is no longer any record of your bankruptcy on your credit report.
Taking the right steps after bankruptcy will help you rebuild your credit more quickly and gain access to higher-quality credit opportunities following the discharge of your unsecured debt.