Filing for personal bankruptcy means taking a pretty significant hit to one’s credit score. It is quite common for people to see a drop of 200 points, sometimes even more than that, when they initially file. Their score will eventually recover but it will take years of payments to regain those lost points in most cases.
The damage to someone’s credit score and the lingering record of the bankruptcy discharge on their credit report may be one of the reasons that someone keeps delaying a possible bankruptcy filing. How long will the record of someone’s bankruptcy affect their credit score and limit their options for personal credit?
There are different rules for different types of bankruptcy
How long the credit bureaus continue reporting someone’s bankruptcy discharge will depend on the type of bankruptcy that they file. In a Chapter 7 bankruptcy, which often leads to a relatively quick discharge of unsecured debts, the record of the bankruptcy will stay on someone’s credit report for 10 years after the date of their discharge.
During a Chapter 13 bankruptcy, it takes substantially longer to go from filing initial paperwork to discharging the remaining balance on someone’s debt. The individual filing will need to make several years of payments as part of a structured plan before the discharge of their remaining unsecured debts. The discharge from a Chapter 13 bankruptcy will therefore only stay on someone’s credit report for seven years.
In theory, the record of that bankruptcy will diminish someone’s credit opportunities. However, the more time that has passed since the discharge, the less the bankruptcy will affect someone’s overall creditworthiness. After just a few years of on-time payments, someone with a prior bankruptcy could qualify for a mortgage and other large lines of credit again.
The impact the bankruptcy discharge has on a filer’s credit opportunities will shrink a little bit as each month passes, as long as they maintain responsible financial habits. Having a single blemish from bankruptcy can also be less of an issue than dozens of past-due accounts and judgments. Learning more about the consequences of personal bankruptcy may benefit those who are considering a bankruptcy filing as a solution for their current financial struggles.