Many people who could use the protection of an automatic stay or the relief of discharging certain debts do not want to file for personal bankruptcy. They may worry about the negative impact bankruptcy could have on their lives. One of the biggest deterrents to filing for bankruptcy is the effect it has on someone’s credit. People can anticipate losing most, if not all of their open unsecured lines of credit, although new credit cards are often among the first opportunities for new credit available after a discharge.
It can take quite some time to rebuild one’s credit after bankruptcy, although those who focus on doing so often achieve their goal with consistent payments on new lines of credit. Those looking for credit cards, mortgages and other lines of credit after a bankruptcy may have a difficult time qualifying for the best terms possible because of the bankruptcy that shows up on their credit report. How long does it take for the record of a bankruptcy filing to come off of someone’s credit report?
Credit reporting rules are different for bankruptcy
Someone’s credit report can affect many aspects of their life, from their eligibility for good mortgage rates to their ability to secure a new job. Credit blemishes can be a major setback, which is why there are legal limits on credit reporting. Most creditors can only legally report a specific debt to the credit bureaus for seven years after they first submit information about the account or delinquent financial obligation. There are some exceptions to the seven-year rule, and a bankruptcy discharge is one of them.
How long the credit bureaus report someone’s bankruptcy depends on the type of bankruptcy they filed. Someone who pursues Chapter 7 bankruptcy can anticipate their discharge affecting their credit opportunities to some degree for 10 years after their discharge. A Chapter 13 bankruptcy, on the other hand, usually only leads to seven years of mandatory reporting. That truncated reporting requirement reflects the multi-year repayment plan that makes a Chapter 13 bankruptcy take longer to complete.
Even before a bankruptcy comes off of someone’s credit report, it may cease having a major impact on their credit opportunities. Lenders give a bankruptcy less weight when making decisions as time passes, especially if someone has established a more recent history of consistently making their payments on time. Learning about the rules that apply during and after bankruptcy may help people feel more confident about the pursuit of financial relief.