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What will happen to your credit if you file for bankruptcy?

On Behalf of | Apr 12, 2021 | Bankruptcy

California residents who are undergoing severe financial distress may be thinking about filing for bankruptcy. Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy, there are many consequences you’ll face for doing so. Below, we’re going to take a specific look at how a bankruptcy will affect your credit.

The most impactful financial event

When a bankruptcy is reported on your credit report, it has the most impactful effect of all financial events. Simply put, bankruptcy is the worst possible attribute to have on your credit report. After a bankruptcy is reported, you’ll notice a big drop in your credit score. This drop in your credit score will make it extremely challenging to acquire credit in the future.

Bankruptcies last for seven years on your credit report

While you may think that undergoing bankruptcy will help you to start out on a new financial chapter in your life, it’s not that easy. A bankruptcy will remain on your credit report for a total of seven years. Over this time, any lenders who are pulling your credit report to authorize the administration of credit to you will be able to see the bankruptcy.

In most cases, new lenders will not offer to lend money to you because a bankruptcy shows that you’re unable to manage your credit properly. Lenders are only looking to give money to individuals who have a strong record of paying that money back. If you have a bankruptcy on your credit report, it shows them that you may not repay that loan, and they may lose out on their money.

When assessing whether or not bankruptcy is right for you, it’s important to think about the impact it has on your credit score. Your credit score is an essential part of your financial health as it gives you access to things like a home mortgage or even an auto loan. If you’re not sure whether or not bankruptcy is the right decision to make, it may be advisable to contact an attorney to assist with your situation.