Will bankruptcy affect my credit score?

Yes. A bankruptcy will remain on your credit report for up to 10 years from the date of the filing. Your credit score will probably decrease by somewhere between 150 and 250 points. This is a big drop and it may make getting a loan difficult right after you emerge from bankruptcy.

But if you are in a position where you are contemplating bankrtupcy, the hit to your credit score is very likely worth it. Letting your debt mount and incurring late fees and charges may be just as harmful to your credit score, if not worse. In fact, depending on your situation, filing for bankruptcy might even increase your credit score.

 Although, it may initially be difficult to get loans without a co-signer for major purchases like houses and cars, most people are able to obtain new credit immediately after filing because creditors know they will not be able to file a Chapter 7 bankruptcy (which wipes most or all unsecured debt) again for 8 years. About two years after filing for bankruptcy, most consumers are able to seek credit on normal terms. This is because all or most of their debt has been wiped clean, and they are now living on a budget they can afford. Outstanding balances, late payments, and records of unpaid debt are removed from your report and marked as “Included in Bankruptcy.” This notation will typically be removed from your credit score after 7-10 years. By opening new credit accounts and making prompt payments, your score could be back in the 700s within 2-3 years.

If you are considering bankruptcy, your credit score should be low on your list of concerns. If, like most people in your situation, you are deep in credit card debt, your credit score is already hurting. Filing bankruptcy can help you get the fresh start and protection you need to get control of your debt, and rebuild your score.

For more information, contact a Seattle bankruptcy lawyer.

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425.889.9300

Types of Bankruptcy Cases

What happens after I file bankruptcy?

After the bankruptcy petition is filed, the court will appoint a trustee and call a meeting of all your creditors. The trustee and your creditors can ask you about your assets, income, and expenses.

In a Chapter 7, the trustee will determine what assets, if any, the court can take possession of and sell. But almost all your assets will be exempted (protected). Once the trustee determines that there are no assets available for liquidation, almost all your outstanding debts are discharged.

In a Chapter 13, you must include a repayment plan that provides for monthly payments to creditors in your petition. Your creditors may question your income and expenses to try to obtain a larger monthly payment amount. Once the repayment plan is confirmed, you must make the payments for the required time period or your bankruptcy may be dismissed.

Can bankruptcy get rid of my student loans?

Only in extremely rare cases. In a Chapter 7 bankruptcy, all debt is discharged (cancelled) at the end of your bankruptcy unless the bankruptcy code specifically prohibits it. (In a Chapter 13 bankruptcy, you may have to pay off a portion of your unsecured debt through your repayment plan).

This year, total student loan debt in the United States reached $1 trillion – more than credit cards and any other type of consumer debt. At the same time, college graduates’ earnings have declined. More and more students are declaring bankruptcy to help get out from under a mountain of student loan debt. But because of a 2005 reform law, unlike most debt, student loans cannot almost never be discharged in bankruptcy.

To discharge a student loan, you must show that paying it back would be an undue hardship on you or your dependents.  To do this, you must file an adversary proceeding with the court. Specifically, you will have to prove that:

(1) You cannot maintain, based on current income and expenses, a “minimal” standard of living for yourself and your dependents if you are required to repay the loans;

(2) Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and

(3) That you have made good faith efforts to repay the loans.

For more information on dealing with student loan debt, consider contacting a Seattle Bankruptcy Attorney.

Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
(425) 889-9300