Filing bankruptcy is one of the worst things to have appear on a credit report. When creditors see a bankruptcy, they may be worried that the individual might not be able to follow through on payments in the future either.
Effects
People who have high credit scores before filing bankruptcy will see a larger drop in their credit scores than those who had low scores before bankruptcy. Someone who had a very low credit score because he had been delinquent in all his accounts may even see his score rise slightly after the bankruptcy, according to Smart Money.
Time Frame
The accounts involved in the bankruptcy remain on the credit report for seven years. The bankruptcy itself stays on the report for seven years if it is Chapter 13 bankruptcy or 10 years if it is Chapter 7 or Chapter 11 bankruptcy. The bankruptcy's impact on the credit score lessens over time.
Prevention/Solution
Paying off debts without declaring bankruptcy is ideal, but even people with a bankruptcy on their credit reports can rebuild their credit within a few years. After declaring bankruptcy, get a credit card and pay it in full every month to rebuild credit. Making on-time payments on an installment loan also helps rebuild credit.
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