The Impact of Personal Bankruptcy on Your Credit

The Impact of Personal Bankruptcy on Your Credit
  • Opening Intro -

    Your credit score will be affected if you file for personal bankruptcy, one of the repercussions of discharging at least some of your debt.


Obtaining future credit will become difficult too with far-reaching consequences affecting your home, work and even your personal relationships. Personal bankruptcy should only be pursued once all other options are exhausted and for the following reasons.

Reason No. 1 — Your credit score plunges. Likely, your credit score has already taken a beating as you weigh personal bankruptcy. After several late payments, inflated credit lines and other financial problems, your credit score before bankruptcy may be deep in subprime territory. Expect a further hit of at least 50 to 100 points following bankruptcy. A bad credit score means you will pay more for whatever personal loans you still have.

Reason No. 2 — A new job may be harder to obtain. Your credit history reflects your personal responsibility, something potential employers may consider as part of the hiring process. When a company asks permission to obtain your information, you need to be prepared to explain your terrible credit rating. If your credit has been trashed because of medical bills, you may receive sympathy. On the other hand, if your credit was hammered because you ran up your account at casinos, few employers will be so forgiving. Yes, you can be denied a job because of your bad credit.

Reason No. 3 — Your car insurance premiums may climb. Did you know that insurance companies tap your insurance score when setting your premium? That score is largely based on your credit score, thus it will take a corresponding hit if you file for personal bankruptcy. This practice will become apparent to you as you shop for new insurance. Your current insurer can raise its rates as well. Expect your other insurance policies to be similarly affected including life and home.

Reason No. 4 — Family time can be compromised. A personal bankruptcy filing can sap your time. And when the filing is over, your time will still be devoted to explaining to creditors why you went bankrupt. You may also find yourself fighting with your utility company to make sure that your lights stay on and you may need to write letters to the three credit bureaus to correct mistakes found in your credit reports. In other words, time that you would have spent with your spouse and children will be consumed by your credit problems. That’s not a good recipe for a happy family nor is it one for a healthy marriage.

Reason No. 5 — You will feel lousy. The stigma of filing for personal bankruptcy is not something you can easily shake. Certainly, the law allows for you to enjoy a clean slate, but that “forgiveness” comes with a string attached. More like a rope. You will spend enormous energy explaining yourself and that does not make for a healthy outlook on life. It can take seven to 10 years out of your life to recover, perhaps impacting you in ways you never envisioned. Simply because the law allows you a way out does not mean that there are no repercussions to taking that route.

Personal Bankruptcy Alternatives

Fortunately, personal bankruptcy can be avoided by following several steps.

First, contact your credits to negotiate a settlement. You may be able to get your outstanding balances lowered and erased.

Second, ask your creditors to quit calling you. By law, you do not have to put up with harassing phone calls.

Third, seek assistance from a credit counseling agency. However, be mindful that a credit counselor may not always have your best interests at heart — work with one that represents you, not the credit card companies.


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Categories: Debt Management

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".