How Long Does Bankruptcy Stay on Your Credit Report?
Posted by Frank Gogol in Credit Scores | Updated on August 23, 2022
Deciding to file for bankruptcy isn’t easy. You may lose assets, and it can affect anyone who co-signed on assets with you. Bankruptcy also hurts your credit. It can make it harder to borrow money in the future. While bankruptcy is a serious debt-relief measure with serious consequences, it can be the right choice for some people. There are also ways to rebuild your credit as you wait for the bankruptcy to be cleared from your credit report.
If you’re considering filing for bankruptcy you’re probably wondering how long does bankruptcy stay on your credit report? Let’s take a look!
Table of Contents
What is Bankruptcy?
Bankruptcy is a legal process designed to offer debt-relief to individuals or businesses. If you are unable to repay your debts, filing for bankruptcy can help you eliminate all or part of your debt, or help you repay a portion of what you owe.
Before you can file for bankruptcy, you will have to demonstrate that you can’t repay your debts and you will have to complete credit counseling.
If you decide to move forward with bankruptcy proceedings, you’ll have to decide which type you’ll file: Chapter 7 or Chapter 13. Both types of bankruptcy can help you eliminate unsecured debts, halt foreclosure and stop other debt collection actions.
Filing for bankruptcy harms your credit score. Because you cannot repay your debts, the lender does not get their money back. Any future lenders will know this and will be warier of lending you money.
Since you do not have a good track record of repaying debt, lenders may decline to provide you with credit or offer you higher interest rates and less favorable terms if they do decide to give you credit at all.
Types of Bankruptcy
If you decide to move forward with bankruptcy proceedings after your credit counseling, you’ll have to decide which type you’ll file: Chapter 7 or Chapter 13. Both types of bankruptcy can help you eliminate unsecured debts, halt foreclosure and stop other debt collection actions.
Chapter 7 and Chapter 13 bankruptcy relieve debt in different ways.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as “straight bankruptcy”, is what most people probably think of when they’re considering bankruptcy. Under this type of bankruptcy, you will have to sell all of your assets. Money from the sale goes toward paying your creditors. Anything you still owe after all of your assets have been sold will be written off. The debt on that account is considered “discharged” and you no longer owe that creditor money.
The consequences of a Chapter 7 bankruptcy are significant. You will lose any property and assets you have, and the negative bankruptcy information will remain on your credit report for up to ten years after the filing date. On your credit report, the accounts that were discharged will be listed as being included in bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy works slightly differently. It allows you to keep your assets in exchange for partially or completely repaying your debt.
The bankruptcy court will set out a three- to five-year repayment plan. This plan may require you to repay all of your debt or only a part of it. When you’ve completed the agreed repayment plan, your debt is discharged, even if you only repaid part of the amount you originally owed.
While any type of bankruptcy negatively affects your credit, lenders might look at Chapter 13 bankruptcy a little more favorably than Chapter 7. With Chapter 13 bankruptcy, you repay part or all of your debt, making lenders slightly more inclined to extend credit to you again in the future.
How Does Bankruptcy Impact Your Credit Score?
When bankruptcy proceedings are complete, the accounts you owed money on are considered “discharged.” Under Chapter 7, this occurs after your assets have been sold and creditors paid. Under Chapter 13, it occurs when you’ve completed your repayment plan.
Accounts that have been discharged remain as a negative item of information on your credit report. Any potential lenders can see you’ve filed for bankruptcy and which accounts have been discharged under the bankruptcy agreement. The negative information on a credit report is a factor that can harm your credit score.
Bankruptcy information on your credit report may make it very difficult to get additional credit after filing for bankruptcy. You may find it difficult to get additional credit until the negative information no longer shows up on your credit report, which can take up to ten years.
During this time, lenders will be cautious about giving you additional credit, and they may ask you to accept higher interest rates or less favorable terms if they do agree to provide you with credit.
After filing for bankruptcy, it is important to begin rebuilding your credit right away and not to fall back into any negative habits that contributed to your best problems in the first place.
How Long Can Bankruptcy Affect Your Credit Score?
So, how long does bankruptcy stay on your credit report? Each of the accounts that you owed money on, and that was included in the bankruptcy agreement, will be listed on your credit report. Each of these accounts will be labeled as “discharged” or “included in bankruptcy”, along with their $0 total. The negative information can make creditors cautious, and you will harm your credit score.
Individual accounts from a Chapter 7 bankruptcy can remain on your credit report for up to ten years after filing. For a Chapter 13 bankruptcy, individual accounts can reflect on your credit report for up to seven years after the completion of your repayment plan.
But the impact of bankruptcy on your credit scores can diminish over time. Your credit score can begin to recover even while the bankruptcy remains on your credit report. After the bankruptcy is removed from the credit report, you should see your score improve even more.
Tips for Repairing Credit After Bankruptcy
After filing for bankruptcy, it is important to put simple, responsible, credit-positive actions into practice. You should pay all of your bills on time, avoid taking on additional debt and create and stick to a personal budget. You should monitor your credit report, and make sure the bankruptcy is accurately reflected on it.
You should also start using credit in small ways (such as a secured credit card) and make sure you pay the balances in full, right away. These credit-positive actions can have a good effect on your credit score.
Make sure the right accounts were reported
Carefully monitoring your credit report is very important after filing for bankruptcy. Make sure only the accounts that were part of your bankruptcy proceedings are reported as “discharged” or “included in bankruptcy”. If you find mistakes, dispute the errors on your credit report and have it fixed right away.
Work on rebuilding your credit with a secured card
Using credit in small ways can help boost your credit score. You might want to try to get a secured credit card. If you do this, you must make all of your payments in full and on time.
Review your reports once the time is up
Once the seven- or ten-year period after your bankruptcy is over, review your credit report again to make sure all of the accounts affected by the bankruptcy have been removed. This should happen automatically, but if it doesn’t, ask to have the bankruptcy removed and your reports updated.
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- Can You Be Denied a Job Because of Bad Credit?
Bankruptcy is never pleasant, and the consequences are severe. Although bankruptcy stays on your credit report for up to ten years, if you are smart about it, your credit score can start improving before then. Take credit-positive actions and avoid the habits that got you into debt in the first place.
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