How long will bankruptcy affect your credit score?
An adult’s credit score can influence many aspects of their life. Their creditworthiness determines how much they pay in interest when buying a vehicle and the home value they can afford. It also may factor into whether or not they can obtain a new job or a promotion.
Unfortunately, it is easy for hard-working people to find themselves overwhelmed by their debt-related obligations. A period of unemployment, a major injury or a recent divorce might all leave someone with more debt than they can anticipate repaying successfully in the near future.
Bankruptcy can be an effective solution for those who are struggling with debt, but it will limit their credit options and drag down their credit score temporarily. Yet, this credit-related “hit” certainly doesn’t last forever.
The type of bankruptcy filed determines the reporting rules
In general, delinquent counts and other blemishes on someone’s credit report will only stay on that report for seven years. However, the rules are a bit different for bankruptcy. When someone files for a Chapter 7 bankruptcy that leads to a discharge of their unsecured debts relatively quickly, the credit bureaus will report their discharge for 10 years. Technically, a Chapter 13 bankruptcy could also drag down a credit score for roughly a decade.
However, the actual discharge only remains visible on your credit report for seven years. The requirement to fulfill a multi-year repayment plan that last three years or longer governs the difference between the reporting rules for Chapter 7 and Chapter 13 bankruptcy.
The impact of bankruptcy diminishes quickly
Someone who has just filed for bankruptcy will likely not have any active lines of revolving credit available to them anymore. However, people can potentially start rebuilding their credit score within a few weeks of their discharge.
Getting a new credit card and other secured lines of credit can build a positive payment history. Most people find that they can start qualifying for reasonable credit offers and larger lines of credit within two to three years of their discharge. As long as filers exercise responsible repayment practices in re: debt moving forward, creditors will be less and less concerned about a bankruptcy filing as time passes. Many filers discover that their credit score is stronger within a few years than it had been for some time before they filed for bankruptcy.
Although it can take several years to rebuild financially after bankruptcy, many people find that filing is the fastest way to get control of their debt so that they can “start over.” Understanding how bankruptcy might affect a credit report can help people make informed decisions about their debt management and debt relief options.