Can Bankruptcy Improve Credit?

Sep 27, 2021


It is well known that filing bankruptcy can have a negative impact on your credit score. What many people do not know is how much bankruptcy impacts your credit depends on your credit prior to filing bankruptcy. For some, bankruptcy may actually help improve your credit score. Let us discuss the negative marks that affect your credit and how bankruptcy can help get you a fresh start.


Several factors go into determining your credit score. The following are some of the negative marks that can affect your credit rating:

Late payments

Maxed out lines of credit

Debts sent to collection agencies

Money Judgments

High debt to income ratio

Continuing to have negative marks hit your credit each month hurts your credit significantly. If your financial situation doesn’t improve and allow you to get and stay current on your debts, then the negative marks will only continue. Bankruptcy can help remove some of those negative factors. Even though bankruptcy will remain on your credit for up to 10 years, the impact of the filing will lessen over time. Those with a very poor credit rating prior to filing bankruptcy may see an immediate improvement to their credit score. Those with an excellent credit rating prior to filing will have the most negative impact. Regardless, just because you file bankruptcy doesn’t mean your credit is ruined for life; it helps you start over.


Bankruptcy can give you a fresh start, but what you do after filing bankruptcy matters. Removing the negative marks on your credit will help, but you also need positive marks to help rebuild your credit. If you take the right steps to rebuild your credit, it is possible to see a significant improvement on your credit score a year after receiving your bankruptcy discharge. Some are even able to qualify for a FHA home loan two years after bankruptcy. Below are some good steps to take to help rebuild your credit.

Dispute Errors on Credit Report

It is always a good idea to check your credit report for errors and dispute any inaccuracies. This is especially important after bankruptcy. You will want to make sure that creditors are reporting your bankruptcy accurately. After approximately two months, the debts included in bankruptcy should show up with a zero balance and should be labeled as discharged, included in bankruptcy, or similar language.

Satisfaction of Judgments

Bankruptcy will take care of the fact that money is owed on a money judgment. However, bankruptcy is federal court and money judgments are obtained through state court. Since the two courts do not communicate, it is important to file a Satisfaction of Judgment Due to Bankruptcy in state court after you receive your discharge. Doing this will remove those judgments from your credit report.

Avoid Unnecessary Debt

Bankruptcy gets rid of your unsecured debts such as credit cards, medical bills, payday loans or previously reposed vehicles. Getting rid of excess debt will help your debt-to-income ratio which can help your credit rating. So, it is important that you are careful to not take on any unnecessary new debt.

Secured Card

It might sound strange, but get a secured credit card. Here is why. You put a deposit down, and that deposit is your credit limit. Use the card for only necessary purchases, such as gas or groceries, and then pay it off each month. This will help rebuild a good payment history and be a positive mark on your credit each month.

Pay Bills On Time

It is important to stay current on all bills you may have after bankruptcy. This is especially true if you reaffirm a secured debt in your bankruptcy. Reaffirming a secured home or car loan can be a great way to have positive information on your credit each month, but only if it is not a financial burden and you are able to stay current.


Bankruptcy is not always the solution, and it can have a negative impact on your credit. However, having negative information hit your credit each month without being resolved will also have a negative impact on your credit. It is wise to review your options. At Pedersen Law, LLC we offer free consultations where we discuss your specific situation and find the right debt relief option for you.

Category: Bankruptcy

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