If you file bankruptcy, will you ever be able to get credit again? What will happen to your credit score?
A person’s credit score determines whether they are more or less risky to lend money to. A person with a low credit score is a high risk to lend to, whereas a person with a high credit score is less risky to lend money to. It is your credit score that determines whether you can get credit and on what terms it will be (such as the interest rate). For example, a person with a credit score of 800 may be able to obtain a mortgage loan with an interest rate of 4.0% whereas a person with a credit score of 650 may be able to borrow the same amount of money but at a 5.5% interest rate.
A common myth is that when a person files bankruptcy, she will never be able to buy anything on credit again, or it will be many years before she can do so. This simply is, well, a myth.
When a debtor is behind on mortgage, car, or credit card payments, the result is the sending of negative information to the credit bureaus, which is hurting the debtor’s credit score repeatedly each month. The bankruptcy filing stops all those monthly “dings” to your credit score. Once bankruptcy is filed, a creditor cannot report an outstanding debt negatively. Then in the months that follow, positive feedback is likely being sent to the credit bureaus.
While your credit score will initially drop, it will start to rise immediately after filing. Your credit score alone determines whether a creditor will extend credit. For better or worse, you will be able to get credit after a bankruptcy filing. I’ve even had clients receive offers for extensions of credit during their bankruptcy cases.