How Does Bankruptcy Affect My Credit Score?

February 26, 2025

It is not uncommon for individuals to worry about how long bankruptcy will haunt them and tarnish their credit scores. While it is true that filing for bankruptcy can remain on your credit report for up to 10 years, the fact of the matter is that not filing for bankruptcy and continuing a cycle of unpaid debt lingers even longer. 

The good news is that bankruptcy will remove you from this cycle.

How Does Bankruptcy Work?

What are your options when it comes to bankruptcy?

There are two primary filings that can be used, including:  

• Chapter 7: This liquidation of assets is available to individuals and businesses who cannot make the monthly payments to repay their debts as they originally agreed to do. As a result, assets such as real estate that is not a primary residence, jewelry, collectibles, vehicles, and financial assets such as investments are sold, and the proceeds are given to lenders to satisfy your financial obligations. Any money that cannot be repaid is charged off as “bad debt” and discharged through bankruptcy. 
• Chapter 13: This is a voluntary admission that you cannot afford to repay your debt but want to attempt to restructure payment to attempt to make good on your bills and repay all or a part of what you owe. This is sometimes referred to as a “wage-earners plan,” as it requires you to have regular income that affirms you are able to pay what you agree to. This typically protects individuals from being forced to include assets like a home as long as they make their regular payments as promised in the bankruptcy case. 

In both types of filings, a trustee is appointed to keep track of your payments and ensure you fulfill your promises. 

What Can You Do to Rebuild Your Credit?

While all of this may sound a bit daunting and even debilitating in finding financial freedom again, there are ways to help yourself out of debt and back into lenders’ good graces. 

You can start by creating a budget and sticking to it. Base it on your income and subtract your revolving monthly payments including money for food, car payments, mortgage, insurance, and any other essential living expenses. While it may be tempting to open credit cards with high interest rates and less-than-ideal terms to be able to fund non-essential items, refrain from doing so. This will likely lead to the same downward spiral that got you into trouble in the first place. 

If you need to take out a loan for a car or other large investment, consider getting a co-signer. This person essentially will vouch for you that you are able to make the payments you agree to, and if not, it ensures that they will step in to make the payments so that you do not default on your loan. 

Similarly, if someone with better credit than you agrees to let you be an authorized user on their credit card, it will help to build your credit score in a favorable way because it shows payments are being made in a timely manner. 

You may also be able to apply for a secured credit card. Designed specifically for those who are trying to rebuild their credit, they function the same as a traditional credit card, except you are required to pay a security deposit upfront. If you default on your payments, the deposit is then used to pay your bills on time. 

For Assistance in Navigating the Road to Financial Success, Talk to the Baltimore Bankruptcy Lawyers at LeViness, Tolzman & Hamilton

If you are in financial distress, let the Baltimore bankruptcy lawyers at LeViness, Tolzman & Hamilton help you weigh your options and devise a plan to become solvent again. Call 800-547-4LAW (4529) or contact us online for a free consultation. 

We have offices in Baltimore and Owings Mills, allowing us to represent clients in Maryland, including those in Anne Arundel County, Baltimore County, Carroll County, Harford County, Howard County, Montgomery County, Maryland’s Western Counties, Prince George’s County, Queen Anne’s County, Southern Maryland, and the Eastern Shore, as well as the communities of Catonsville, Essex, Halethorpe, Middle River, Rosedale, Gwynn Oak, Brooklandville, Dundalk, Pikesville, Nottingham, Windsor Mill, Lutherville, Timonium, Sparrows Point, Ridgewood, and Elkridge.