One of the reasons people give for rejecting bankruptcy as an option for dealing with their debt is the impact it will have on their credit. Too many people mistakenly believe that they will never be able to get credit again after they file bankruptcy, but that isn’t really the case.
It is true that bankruptcy is a strong negative mark that will decrease your credit score and alert lenders to you potentially being higher risk as a borrower. However, bankruptcy is relatively common, and many people bounce back financially after discharging some of their debts. You can typically get credit cards within weeks of your discharge and qualify for a mortgage or car loan within a few years, provided that you make good credit decisions.
It is possible to quickly rebuild your credit after bankruptcy and have good credit even with bankruptcy still showing up on your credit report. Still, you may find yourself wondering how long your bankruptcy will be on your credit report.
The type of bankruptcy affects the length of reporting
Individuals typically file either Chapter 7 or Chapter 13 bankruptcy. There are other forms available, but those are more often used by businesses and other complicated legal entities like a trust. Chapter 7 bankruptcy is standard liquidation bankruptcy.
Individuals who can’t pay their debts anymore file for bankruptcy, liquidate some of their assets and receive a discharge of their unsecured debts from the courts. Since Chapter 7 bankruptcy involves discharge without repayments, it stays on your credit report longer than Chapter 13 bankruptcy. The courts can report it for 10 years after the date of your discharge.
For Chapter 13 bankruptcy, the courts will only report the bankruptcy discharge for seven years. However, given that you will typically have a repayment period of about three years, the overall impact on your credit will last the same amount of time regardless of which form you choose.
Bankruptcy is better than delinquent accounts and judgments
Although bankruptcy is a red mark on your credit that will lower your score, it is certainly less of a blemish than a stream of judgments and a large number of delinquent, overdrafted or unpaid accounts on your credit report. In the end, it is a single negative mark, compared to potentially dozens of accounts that you struggle to keep paid and current.
If you still don’t know if bankruptcy might be a good option for you, sitting down with an attorney who handles bankruptcy cases can be a good step toward making your mind up about your options. An attorney can give you an honest opinion based on their knowledge of the bankruptcy system and an explanation of your financial circumstances.