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How long will your bankruptcy filing stay on your credit report?

On Behalf of | Nov 4, 2021 | Bankruptcy

Individuals who would benefit from filing for personal bankruptcy often put off filing until they have no other choice. One of the reasons people procrastinate when it comes to filing bankruptcy is that they believe the myth that bankruptcy will permanently destroy their credit.

Although bankruptcy often does drag down your credit score, how much of an impact it has depends on the kind of bankruptcy you file and what actions you take after your discharge. Most people can use bankruptcy as an opportunity to improve their credit by eliminating debt and preventing numerous blemishes on their credit reports.

Of course, the bankruptcy itself will stay on your credit report for some time. How long will a bankruptcy filing stay on your credit report?

The impact varies depending on the kind of bankruptcy you file

In a Chapter 7 bankruptcy, the person filing may have to liquidate some assets to achieve the discharge of their unsecured debts. In a Chapter 13 filing, the individual doesn’t have to liquidate property but will instead need to complete a multi-year repayment plan.

Chapter 7 bankruptcy typically has a stronger negative impact on your credit than a Chapter 13 filing will. Your bankruptcy discharge will also stay on your record for longer after a Chapter 7 filing than a Chapter 13 filing. It takes 10 years for a Chapter 7 bankruptcy to come completely off of your credit report. A Chapter 13 discharge will only stay on your bankruptcy for 7 years.

Even before your bankruptcy comes off of your credit report, its impact on your credit score will decrease over time.

You can have a great credit history by the time the bankruptcy disappears

Regardless of which kind of bankruptcy you file, your discharge releases you from your unsecured debts and gives you an opportunity to rework your budget.

You can likely start rebuilding your credit within a few months with small lines of credit, eventually building up to more diverse and larger forms of personal credit. When you have multiple years of regular payments and proper use of credit on your record, a bankruptcy from five or six years ago won’t matter as much to lenders as it would in the year right after you file.

Learning the basics of bankruptcy, like how it affects your credit report, can help you feel more comfortable with using this powerful financial tool.