Life After Debt: What Happens When You File Bankruptcy

Bankruptcy is a necessary evil for some Americans after a financial catastrophe, though recovery is possible.

A year after filing for bankruptcy, 43 percent of filers had a credit score of 640, says a study from loan marketplace website LendingTree. The next year 65 percent had a score over 640.

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“While a prior bankruptcy can make it more expensive to borrow, it’s certainly not impossible to qualify for credit,” the study says. “And if borrowers wait to apply for new loans even just a few years after bankruptcy, they may find rates that aren’t too far off from what other borrowers are being offered.”

The costs of filing bankruptcy

Bankruptcy isn’t a decision that can be made easily, and should be consulted with a credit counselor.

Most people will file either Chapter 7 or Chapter 13, depending on their financial situation, and what assets they own prior to filing. Both require the filer to be assessed by a “means test” to find out whether or not they’re eligible to file bankruptcy. Filing Chapter 7 will leave a mark on your credit for 10 years, while Chapter 13 will for seven. But you can still revive your credit score along the way.

“People may think that filing a bankruptcy would put you out of the loan market for seven to 10 years, but it is possible to rebuild your credit to a good quality,” says Raj Patel, LendingTree’s director of credit restoration. “The key is to use it responsibly — keeping balances low and making payments on time, which are two of the biggest factors that impact your credit score.”

Making payments on time, and a little patience between borrowing will benefit your credit situation.

Applying for a $15,000 auto loan a year after filing can cost you an additional $2,171 in borrowing fees. Waiting two years after filing bankruptcy lowers them to $799 for the same auto loan, the study says. There are similar findings for mortgage rates.

Three years after filing bankruptcy, borrowers get offers with annual percentage rates (APR) 19 points higher than those without. The higher the APR, the higher the borrowing costs are. But, having a credit score between 720–739, they receive offers with similar APR rates as those without a bankruptcy.

Light at the end of the tunnel

People who file bankruptcy tend to have lower credit scores than those who haven’t. After about five years, 75 percent of bankruptcy filers improved their credit score to 640 and higher. Credit scores were 640, on average, a year after filing. And increased every year to 675 five years later.

How can you better your chances for financial recovery? You could move to one of the best cities to start over after bankruptcy. A previous Lending Tree study analyzed their customers’ data to find the cities where those with the highest credit scores were, 3–4 years after filing bankruptcy.

Five cities all had Lending Tree customers with credit scores over 640, 3–4 years later. They also all had the lowest rents and highest debtor-friendly grades from the National Consumer Law Center. Those five cities are…

  • Buffalo, New York
  • Minneapolis, Minnesota
  • Salt Lake City, Utah
  • Austin, Texas
  • Hartford, Connecticut

“New beginnings are an American tradition, and it’s not uncommon for people to lose so much that they have to start over with new jobs and careers, new finances, and even new relationships,” the study says. “The likelihood of success can depend in part on social and economic conditions.”

Read more on our website…

Originally published at on May 7, 2018. helps people with credit card debt, tax debt, student loans debt, credit report errors, ID theft issues, bankruptcy & more!

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