Bankruptcy usually results in a significant net positive impact on a filer’s situation. By halting collection activity and discharging some debts, bankruptcy can help people overcome short-term financial hardship. Unfortunately, many people fail to pursue bankruptcy in part because of the risks involved.
People know that bankruptcy is likely to drag down their credit score by 200 points or more. They know they face the immediate closure of revolving lines of credit. They may also have a long road ahead as they work to rebuild their credit after bankruptcy. For example, a discharge secured through a successful bankruptcy filing shows up on someone’s credit report for years afterward.
Reporting depends on the type of bankruptcy
There is no one rule for how long the credit bureaus report someone’s bankruptcy discharge. Instead, the duration of reporting depends on the type of bankruptcy someone pursues. After a successful Chapter 7 bankruptcy, the record of someone’s discharge can affect their credit report for 10 years.
If someone successfully completes a Chapter 13 bankruptcy, the discharge may only show up on their credit report for seven years. The difference in reporting requirements takes the Chapter 13 repayment plan that lasts for at least three years into consideration.
Credit opportunities arise quickly after bankruptcy
Contrary to what people sometimes think, it is not necessary to wait for a bankruptcy to fully come off of someone’s credit report to begin using personal lines of credit again. Many people can qualify for smaller and secured revolving lines of credit within a few months of a discharge. Credit card companies are often eager to sign people back up because it takes years for them to be eligible to file for bankruptcy again.
Many people who use credit responsibly after their discharge can rapidly improve their credit scores. The average person could qualify for a standard car loan or even a mortgage within two to three years of their discharge. Many people find that they reach their old credit score or exceed it even before the bankruptcy comes off of their credit report.
Those who have big plans for the future may find that filing bankruptcy sooner rather than later could help them minimize the impact that their debts have on their future opportunities. The sooner someone obtains a discharge, the sooner they can begin rebuilding their credit.
