I’m often asked about how filing bankruptcy will affect a person’s credit rating.  By itself the act of filing bankruptcy has a negative impact on a credit rating.  Filing bankruptcy will negatively impact your credit report for 7 years following filing Chapter 13 bankruptcy and for 10 years in a Chapter 7 bankruptcy case.  But to understand the actual effect on a credit report of filing bankruptcy we need to understand what factors have positive or negative affects on a credit score.

The primary factors that affect your credit score positively include:

1. Your history of paying your bills on time and in full
2. Using 25 percent or less of your available credit
3. Steady employment.

The primary factors that affect your credits score negatively include:

1. A history of paying bills late or not at all
2. Using more than 80 percent of your total available credit
3. Bankruptcy
4. Liens or foreclosures
5. Periods of unemployment
6. Requests for new lines of credit

As you can see, bankruptcy is just one factor that is considered in determining a credit score.  In general, by the time most people make the decision to file bankruptcy, they have already had a period of time where they have been paying bills late or not at all and have maxed out their lines of credit.  Their credit score is already poor.  Many debtors find that soon after receiving their bankruptcy discharge, their credit rating is higher than it was before filing bankruptcy because the negative effect of filing bankruptcy may be less detrimental to a credit score than having maxed out lines of credit and a history of paying bills late or not paying at all.  More importantly, after receiving a discharge, debtors are in a better financial situation, and better able to pay their bills on time establishing a positive payment history and improving their credit score.  The bottom line is that for most people filing bankruptcy will help them to improve their credit score.