Bankruptcy is the legal process of being forgiven for repaying your creditors the full amount of money you promised to pay them when they loaned that money to you. Since credit has everything to do with your financial responsibility and ability to repay loans, filing for bankruptcy will hurt your credit a great deal. Filing for bankruptcy is the worst that thing that you can do for your credit and will affect your credit score and creditworthiness.

How Does Filing for Bankruptcy Affect Your Credit?

The short answer is that you will lose a large amount of points off your credit score as a result of declaring bankruptcy. Although every individual may lose a different amount of points, in most situations people can expect to lose in the neighborhood of 100 and 150 points. The number of points that drop from the score is proportional to the credit score prior to filing bankruptcy. A score that was over 700 will see somewhere around a 150 point drop, while a score 600 or lower will experience a loss of about 100 points. It is important to keep in mind that missing payments on any of your monthly bills will drop your credit score, so being several months delinquent before filing bankruptcy will add to the damage done to your credit.

What Does that Mean for Creditworthiness?

The terms of any loan or credit offers are very closely tied to your credit score, so having filed for bankruptcy will worsen or eliminate any terms you might get. A bank views someone that has recently filed bankruptcy is a very large risk and will typically not offer any credit terms for several years immediately following the bankruptcy. Once credit offers do begin to come they will only come with poor terms; high interest rates and low credit balances. While this may be frustrating at first, in order to rebuild your credit and receive better terms you will have to start here and work your way back up. Unfortunately making large purchases, such as a home or vehicle, will be very difficult in the first few years following the bankruptcy.

Can You Recover from the Damage to your Credit?

It is possible to rebuild your credit to good standing after filing for bankruptcy, however it takes years to do so. Think of it like you have just been asked to start your entire credit history from scratch and slowly work your way up. By paying your bills on time, properly managing your secured credit card, and avoiding spending outside of your means, you can rebuild your credit score and creditworthiness over the course of several years. This fresh start financially is a great opportunity to build good money management habits and avoid making the same financial mistakes that may have gotten you to file bankruptcy in the first place. It will take a lot of self control and patience to rebuild your credit score but it can be done and by doing so you can set up a promising financial future.