How Bankruptcy Affects Your Credit Score and Borrowing Power
If you’re considering bankruptcy, you’re probably worried about your credit score—and what it means for your future. Will you ever be able to buy a house or a car again? How long will bankruptcy stay on your credit report? What lenders don’t always explain is this: filing for bankruptcy can actually improve your credit score over time, especially if your current score is already low due to missed payments, collections, or lawsuits.
Let’s break it down—how bankruptcy impacts your credit score, how quickly you can rebuild, and what to know about buying a home or car after filing.
📉 What Happens to Your Credit Score When You File for Bankruptcy?
Filing for bankruptcy will temporarily lower your credit score—especially if you had a good score before filing. But for most people already behind on bills, in collections, or maxed out on credit, the impact is often less severe than expected.
As noted by NerdWallet in their article “How to Recover From Bankruptcy”, your credit score can begin to recover just months after receiving a discharge, especially if you keep your remaining accounts in good standing.
“Bankruptcy wipes out or restructures debt, giving you a chance to rebuild,” NerdWallet writes. “If your score was already low, you could see a modest bump a few months after your discharge.”
🔄 Why Bankruptcy Can Be Better Than Ongoing Late Payments
If you’re months behind on credit cards, loans, or utilities, your credit score is already taking a hit every single month. Those missed payments stay on your report for seven years and drag down your score over time.
Filing for bankruptcy stops the bleeding. You clear your past-due debts and start fresh, which allows your score to begin rising instead of sinking further.
🏠 When Can You Buy a Home After Bankruptcy?
Yes, you can buy a home after bankruptcy—many people do.
Here’s a general timeline based on the loan type:
FHA Loan: 2 years after Chapter 7 discharge; 1 year into a Chapter 13 with trustee approval
VA Loan: 2 years after Chapter 7; 1 year into a Chapter 13 with trustee approval
Conventional Loan: 4 years after Chapter 7; 2 years after Chapter 13 discharge
💡 Pro Tip: Lenders also look at your income, current debts, and credit score. That’s why rebuilding credit after bankruptcy is key—pay on time, keep balances low, and avoid unnecessary inquiries.
🚗 When Can You Buy a Car After Bankruptcy?
After Chapter 7: You can finance a vehicle immediately after your discharge (typically 3–4 months after filing). Technically, you can apply sooner, but most lenders wait until discharge.
During Chapter 13: You’ll need trustee approval and a modified plan that includes your new car loan. Courts will approve the purchase only if it’s necessary (e.g., for commuting to work) and affordable.
⚠️ Important: Some lenders charge very high interest rates to post-bankruptcy borrowers. Work with a bankruptcy attorney or credit counselor to ensure the terms are fair before committing.
⚖️ Chapter 7 vs. Chapter 13: Borrowing Rules
Chapter 7 Bankruptcy: Once your case is filed, you do not need trustee approval to incur new debt. However, most lenders won’t extend credit during an active bankruptcy. After discharge, you’re free to apply for credit again.
Chapter 13 Bankruptcy: You’re in a court-supervised repayment plan for 3–5 years, and you cannot borrow money or buy/sell assets without prior trustee approval. This includes refinancing, taking out new loans, or even applying for a new credit card.
🧭 Your Credit Score Isn't Everything—But It Does Matter
A healthy credit score opens the door to:
Affordable mortgage rates
Better car loan terms
Approval for apartments, cell phones, and utilities
Even employment in some industries
That’s why bankruptcy can be a turning point—not the end of your financial journey.
👩⚖️ Every Financial Situation Is Unique—Talk to a Bankruptcy Attorney First
Before you buy, sell, or finance anything, speak with a bankruptcy attorney. The timing of your decisions can impact:
Whether you’re eligible to file
What assets you can protect
Whether your case gets dismissed or converted
At Bankruptcy Near Me, we guide clients across California and Maryland through the complexities of rebuilding credit after bankruptcy. We’ll help you protect your assets, plan your next steps, and time your financial recovery the right way.