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It is true, most of us have debt; some tend to accumulate a lot more debt than the average person. Often these same individuals may find themselves needing to file for bankruptcy to be able to get the head above water with their finances. What does that mean? What initial impact will it have you your credit? How long will that impact affect your credit score? Is bankruptcy the best option for you or are there other options available? Read on as we discuss these questions and many more!


1. What is bankruptcy
2. How does filing bankruptcy affect your credit score
3. The pros and cons of filing for bankruptcy
4. Steps to take after you file for bankruptcy
5. Tips on how to rebuild your credit rating in the future
6. Final thoughts on whether or not you should file for bankruptcy



What is bankruptcy for consumers? Chapter 13 vs. Chapter 7

Bankruptcy is a legal process used to discharge debts, which are, most often, unsecure. There are two types of bankruptcies available for consumers: Chapter 13 and Chapter 7.


Chapter 13

Chapter 13 bankruptcy is for consumers who have an income but don’t have enough to cover their monthly expenses. Suppose you have more money going out than coming in; this opens up the Chapter 13 option for you and allows you to work out a repayment plan with your creditors to pay them back over a three-to-five-year span. In this case, the court will act as a steward of your money to assure the repayment plan is satisfied. A person who files for Chapter 13 will generally keep all of their assets and property.


Chapter 7

Chapter 7 bankruptcy is for consumers who don’t have any income or are below their state poverty average, and they also owe more than what their assets are worth. Chapter 7 is the most common form of bankruptcy, and it is dicharged faster than Chapter 13.

How does filing bankruptcy affect your credit score?

Bankruptcy will most likely lower you credit score initially. However, that doesn’t mean you won’t be able to rebuild your credit! The good news is bankruptcy can help stop the bleeding on accounts reporting as continuously late and possibly help with repossession status. The bad news is that filing a Chapter 13 or Chapter 7 could stay on your credit report for up to ten years.

The pros and cons of filing bankruptcy:


  • Unsecured debts will be eliminated, which can help create more financial stability in the future.
  • You may have to go through a repayment plan or debt management program if you file Chapter 13, but it’s better than the alternative of not having a plan in place.
  • The elimination of debts through Chapter 13 can help you qualify for a future loan, which may be cheaper or easier to get approved.


  • If your secured debt is something like a home mortgage and the house needs repairs, filing for bankruptcy may mean you lose your home.
  • Some jobs may not be able to hire you because of the bankruptcy filing on your credit report.
  • Possible misuse of funds or fraud will make a case for prosecution and result in jail time if found guilty.


Steps to take after filing for bankruptcy:

  • Inform your creditors about the bankruptcy right away.
  • Review the repayment plan with creditors or debt management program before it goes into effect, so there are no surprises later on down the line.
  • File your taxes and any other necessary paperwork.
  • Be prepared for possible adverse effects on your credit score.
  • Take care of debts with the help of a bankruptcy attorney or debt management company approved by the courts to assist you.
  • Keep making your monthly payments to the court for any debts mentioned in your bankruptcy, including credit cards.
  • Don’t open new accounts because it will affect your credit score and tempt you to spend money again.


Tips on how to rebuild a good credit rating after filing bankruptcy:

  • Start by paying all of your monthly bills on time to keep your credit score trending in the right direction.
  • Be sure to not spend more money than you make. Staying within your means will help rebuild any equity lost through bankruptcy.
  • Check-in with the court on how long it may take before you can apply for any loans or mortgages after filing Chapter 13, as there are usually waiting periods and requirements.


Tips on how to rebuild your credit rating in the future

  • The first tip and most important is, be patient. It will be a timely process.
  • Keep in touch with the bankruptcy court and make sure you are still making payments for any debts mentioned in your filing.
  • Stay in contact any bankruptcy attorney or debt management company with any questions.
  • Keep records of all payments made to creditors, as well as the court fees that you owe them, and make sure to pay on time.
  • Get a copy of your credit report to keep track of any added or changed information.
  • Paying off as much debt and keeping balances as low as you can in the future will help rebuild your credit score quicker and make it easier for you to get loans when necessary.


Final thoughts on whether filing bankruptcy may be right for you:

Whether or not filing for bankruptcy is the right choice will depend on your financial situation.

If you have many debts and feel like this would help eliminate some stress, it may be worth talking to an attorney about what type of bankruptcy is right for you, if any. Just make sure you research your options before committing to anything.

If you do decide to file bankruptcy, make sure to get good advice from a reputable source and the right attorney or company that the courts approve before proceeding with any filing decisions. The more information you have going into bankruptcy, the better.

If you’re considering bankruptcy or looking to recover from bankruptcy, we suggest getting a complimentary credit analysis from The Phenix Group!