Personal bankruptcy is often the last line of defense for those facing intense economic pressure. A bankruptcy filing can eliminate stressful collection activity and result in the dismissal of pending creditor lawsuits. Bankruptcy can help people renegotiate some of their financial obligations and discharge eligible debts.
Of course, a bankruptcy has a strong negative impact on a filer’s credit score. Credit scores often drop by 200 points or sometimes even more depending on the circumstances at the beginning of the bankruptcy process. While other credit issues related to discharged debts come off of the credit report after the bankruptcy, the bankruptcy discharge remains visible for years after the filer finalizes their bankruptcy.
How long does the record of a bankruptcy influence creditworthiness?
There are credit reporting restrictions
The good news for those considering personal bankruptcy is that the record of their case is not a permanent credit blemish. There are federal rules that limit how long the credit bureaus can report the discharge of debts through bankruptcy.
The type of bankruptcy the filer chose determines how long outside parties can see that they previously filed for bankruptcy. Individuals who qualify for Chapter 7 bankruptcy can expect the credit bureaus to report the record of their discharge for 10 years afterward. A decade after their discharge, the record of the bankruptcy comes off of their credit report, meaning it should not affect their ability to secure credit opportunities.
If the filer pursues a Chapter 13 case instead of a Chapter 7 bankruptcy, the window for reporting the discharge is somewhat smaller. A Chapter 13 bankruptcy only shows up on a credit report for seven years, much like any debt or missed payment.
Bankruptcy has less of an impact on a filer’s credit score as time passes, especially as they develop a new, positive history of proper credit use. Those who are assertive about rebuilding their credit after bankruptcy may find that they can rebuild their credit score to a decent level even before the bankruptcy comes off of their credit report.
Understanding what to expect when pursuing personal bankruptcy can give people the courage to take assertive action. A timely bankruptcy filing can make a major difference for those struggling with overwhelming personal debt.
