Bankruptcy and Credit Score in Washington: What You Need to Know

Bankruptcy is a big financial decision and the stigma and fear of what it will do to your credit score can be overwhelming. Will it be disastrous and do irreparable harm to your credit report? While your credit score will probably decrease temporarily, sometimes drastically because of your bankruptcy filing, it’s also an opportunity to start over. Knowledge of how bankruptcy impacts credit scores in Washington State can help with your decision and long term financial plans.

The Law Office of Erin Bradley Mcaleer provides counsel to assist debtors in determining which debt relief options are appropriate in their situation, and understanding the short and long term financial implications of bankruptcy.

How Bankruptcy Affects Your Credit Score

When you file for bankruptcy it will end up on your credit report. The effect on your credit score will depend on your individual financial situation at the time of filing.

  • If your credit score was already low due to missed payments, collections, or charge-offs, the drop may be less dramatic.
  • The greater the score you had prior to filing for bankruptcy, the greater the drop may be initially.

A bankruptcy occurs when your creditors decide you’ve failed to make good on your loans and debt obligations. The bankruptcy can prevent continuing negative reports (lenders make an entry for every late payment, repossession and collection account you’ve had).

Chapter 7 vs Chapter 13 and Credit Impact

The type of bankruptcy filed can influence how long it remains on your credit report:

Chapter 7 Bankruptcy

  • Typically remains on your credit report for up to 10 years.
  • Discharges most unsecured debts, such as credit cards and medical bills.
  • Offers a faster path to eliminating overwhelming debt.

Chapter 13 Bankruptcy

  • Usually remains on your credit report for up to 7 years.
  • Involves a court-approved repayment plan.
  • May be viewed slightly more favourably by lenders as some of the debt has been repaid.

Both Chapter 13 Bankruptcy and Chapter 7 Bankruptcy offer a range of benefits. Both Bankruptcy Chapters offer debtor legal protection in the form of an automatic stay. The automatic stay prevents creditors from harassing debtors through letters, phone calls, or other forms of communication. It also prevents wage garnishments and collection lawsuits, among other things.

Can Bankruptcy Help Improve Your Credit Over Time?

Bankruptcy can initially make you appear to be a bad credit risk, but you can very quickly regain creditworthiness. You may see your score start to creep up in as little as a year to 18 months after your bankruptcy has been discharged.

Why? Because:

Old debts are discharged and no longer reported as delinquent.

Your debt-to-income ratio improves.

You have the opportunity to establish new, positive credit habits.

You can rebuild your credit over time by acting in a fiscally responsible manner and paying bills on time and managing your credit responsibly.

Steps to Rebuild Credit After Bankruptcy

After receiving a discharge, consider these strategies:

  • Review your credit report for accuracy.
  • Create and maintain a realistic budget.
  • Open a secured credit card if appropriate.
  • Make all payments on time.
  • Keep balances low.
  • Avoid taking on unnecessary new debt.

Consistency and patience are key factors in restoring credit health.

Bankruptcy Is a Financial Reset — Not a Financial End

This is perhaps the most common reason people are afraid to file for bankruptcy. The fear of what will happen to their credit score is a major concern. The reality is that the negative impact of ongoing financial difficulties can be far more damaging than any negative impact that may occur to their credit score. Continuing to be forced to deal with large amounts of debt, court proceedings and garnishments can have negative effects on a person’s financial stability for years to come. In contrast, the negative impact on credit scores associated with filing for bankruptcy are generally short-lived.

This site is designed to serve as a public service explaining bankruptcy. It is meant to provide information, not serve as a solicitation for legal business. A better understanding of bankruptcy, a legal right under the Constitution, may help reduce the stigma felt by individuals and their families when facing desperate financial circumstances. Bankruptcy is a fresh start statute. The goal and intent of the law is to give people a chance to rebuild their lives when they are hopelessly overwhelmed with unpayable financial obligations. Bankruptcy is often the first step on the road to recovery. It is not the end of the road.

When to Speak With a Bankruptcy Attorney

Are you buried under seemingly insurmountable amounts of debt? Are debt collectors calling or showing up at your doorstep? Have you had wages or bank accounts garnished? We recommend that you consult with an experienced bankruptcy attorney, like those found at Poyner Covington LLP, who are licensed in Washington State and knowledgeable of the local and national bankruptcy laws and their applications to your specific financial situation. Because each person’s financial situation is unique, an attorney can advise you which chapter of bankruptcy is the most appropriate for your particular situation. This determination is best made after consulting with an attorney, who will be able to assess your situation and guide you through the process of filing a bankruptcy.

Law Office of Erin Bradley Mcaleer serves Washington State residents and businesses with effective debt relief strategies to safeguard property, income and family well-being while achieving financial rehabilitation.