The credit impact of a bankruptcy filing is a major deterrent for the average adult coping with more debt than they can handle. While people recognize that their financial circumstances are not sustainable and that eliminating some debt would be beneficial, they worry that filing for bankruptcy will make them ineligible for credit and drag down credit scores too much.
In reality, bankruptcy is just one blemish on your credit report that replaces multiple other negative marks, like accounts with late or missed payments and debts that have gone to collections. All of those separate credit issues will come off of your credit report, and the record of your bankruptcy discharge will replace them.
How long will the record of the bankruptcy remain on your credit report?
Various rules for bankruptcy
In general, negative marks on your credit report will only stay there for seven years after a creditor or financial company first reports the issue to the credit bureaus. The rules are slightly different for a bankruptcy filing.
The type of bankruptcy that you seek will determine how long the record of the discharge remains on your credit report after the bankruptcy. For many adults, Chapter 7 bankruptcy is the fastest and most effective means to secure a discharge of their unsecured debt. A Chapter 7 bankruptcy will stay on their credit report for 10 years after the discharge.
A Chapter 13 bankruptcy takes longer to complete, as it requires a multi-year repayment plan. Once you complete the scheduled payments and receive your discharge, the discharge will become part of your credit report. That Chapter 13 discharge will come off of your record in seven years, rather than the 10 years for a Chapter 7 bankruptcy.
You don’t have to wait seven or 10 years for credit
The more time that passes after your bankruptcy filing, the less of an impact it will have on your score and on how creditors perceive you. Many people can qualify for credit cards in the first year after their discharge and for mortgages or car loans just a few years after that.
If you are responsible about rebuilding your credit after discharge, your credit score may go up beyond where it was when you filed even before the bankruptcy comes off of your record. Understanding what happens in a personal bankruptcy filing may give you the courage to take the first steps toward recovering your financial power.