Does Bankruptcy Really Mess Up My Credit Score? By Adam Brown Esq. on November 15, 2022


Depending on the type of bankruptcy, whether you file Chapter 7 or Chapter 13 in New Jersey, the length of time a bankruptcy stays on your credit report varies. Regardless, the credit score damage may be devastating. The Fair Credit Reporting Act (FCRA) states that a judgment will stay on your credit report for at least seven years. This number is the same across states because the FCRA is a federal law.

A Chapter 7 bankruptcy can stay on your credit report for up to 10 years from the date the bankruptcy was filed, while a Chapter 13 bankruptcy will fall off your report seven years after the filing date. Under the Fair Credit Reporting Act no consumer reporting agency may make any consumer report containing a Bankruptcy older than 10 years.

What is the Initial Credit Score Damage?

According to  an individual “with an average 680 score would lose between 130 and 150 points in bankruptcy. Someone with an above-average 780 score would lose between 200 and 240 points.  On the other hand, if your score is in the 400s or 500s when you file, it’s possible that your score may experience a boost from the bankruptcy filing. People in this score range have seen credit score boosts as high as 50 points after filing for bankruptcy.”

While the initial impact of a bankruptcy filing may lower your credit score, there is hope. Rebuilding your credit after bankruptcy may occur quicker than you think. Allowing debt to accrue, entering a consolidated loan, or a credit repayment plan may not be the wisest decision depending on your long-term goals. Be cautious of quick credit score repair companies, remember to gauge your long-term goals when planning, prior to filing for bankruptcy. For example, if your goal is to purchase a house or new car, considering how long it would take to become eligible for conventional loans after bankruptcy is key.

Per the requirements of B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit, an amount of time must elapse (the “waiting period”) after a significant derogatory credit event before the borrower is eligible for a new loan salable to Fannie Mae. 

For an individual who filed a Chapter 13 Bankruptcy, a potential borrower will be deemed ineligible for a FHA loan, or a conventional loan from Fannie Mae or Freddie Mac, if the discharge was within the past two years. For an individual who filed a Chapter 7 bankruptcy, the borrower will be ineligible for the above loans for a period of four years.  There is a waiting period of three years for potential borrowers who have a foreclosure.

Should I Do a Cost Benefit Analysis?

It is important to balance the timeline for major credit score damage with the cost benefits prior to filing for bankruptcy. A repossession, default, collection, court judgment, or a foreclosure will take seven years to come off your credit report. Credit scoring is complex, and it's impossible to pinpoint exactly how many points your credit score will drop in any of those above events according to It is safe to say that given your timeline for your long-term goals, you should consider that these major derogatory credit events before filing for bankruptcy. They might linger on your credit report for a similar length of time.\


Are There Benefits to Filing Bankruptcy?

The beauty of bankruptcy may be in the impact it has on your debt-to-income ratio compared to consolidation loans and other long-term payment plans. For example, chapter 7 could wipe out all of your debts entirely within a six-month period. Having that “fresh start” in New Jersey, compared to waiting to finish a payment plan, or to pay off a consolidated loan may make more sense depending on your long-term goals.

To learn more about how the credit score damage from bankruptcy may impact your financial goals, please call today at 973-281-2388. We can help you plan for poor credit and how to rebuild.



Law Offices of Adam C Brown Esq. PC

Law Offices of
Adam C Brown Esq. PC

Law Offices of Adam C Brown Esq. PC is a dynamic regional law firm practicing family and bankruptcy law throughout the state of New Jersey. Our professional affiliations include:

  • New Jersey State Bar
  • Garden State Bar Association
  • Hudson County Bar Association
  • National Association of Consumer Bankruptcy Attorneys

You can request a consultation online or by calling (973) 281-2388.

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