Filing for bankruptcy may be an option for some people looking to find relief from insurmountable levels of debt. It may be helpful in these situations, but it also puts great stress on you and has a negative impact on your credit score.

Though many people have difficulty getting credit after they file bankruptcy, a bankruptcy will not stay on your credit reports forever. Most bankruptcies will fall off your credit report after 7 to 10 years.

Does the type of bankruptcy matter?

Though there are many ways to file for bankruptcy, the two most common types of bankruptcy that consumers file are Chapter 7 bankruptcy and Chapter 13 bankruptcy. The differences between them may help you decide which to file, and do have an effect on how long the effects of the bankruptcy stay on your credit report.

Chapter 7 bankruptcy

Chapter 7 is considered a liquidation bankruptcy. It clears most or all of your unsecured payments, such as credit debts and medical bills, without the need to pay them back through a repayment plan.

In order to qualify for Chapter 7 bankruptcy, a person has to have an annual salary below a certain level. As part of the process, the trustee assigned to your case will sell off your nonexempt property to pay back your creditors. Other than that, the creditors receive nothing, and can no longer pursue you for collection.

If you file for Chapter 7 bankruptcy, it is likely that the bankruptcy will stay on your credit for a full 10 years. After 10 years, the derogatory mark will fall off your credit report. Any charged-off accounts you had when you filed bankruptcy should drop off 7 years from the date you filed.

Chapter 13 bankruptcy

A Chapter 13 bankruptcy is a type of reorganization bankruptcy. It is mainly for people who make enough money to have some left over each month to pay back their creditors through a repayment plan as part of the bankruptcy deal.

This repayment plan usually takes place over 3 to 5 years. After this repayment plan is payed off, the debts will likely be up to be discharged from your credit report.

A Chapter 13 bankruptcy does not last as long either. Chapter 13 bankruptcy stays on your credit reports for 7 years in most cases. The accounts that charged off when you filed bankruptcy should also disappear at that time as well.

Partly due to your ability and willingness to pay back your debts, many creditors will also see a Chapter 13 bankruptcy as a little less impactful to your credit score than a Chapter 7.

How long does bankruptcy last?

In most cases, bankruptcy stays on your credit score for 7 to 10 years. It will negatively affect your credit score the entire time it stays there, and may make it difficult for you to rebuild credit or get a loan.

It is still important to try and manage your credit well during this time, as doing so can have a great positive impact on your credit score, especially once the bankruptcy drops off.

What to do once you've filed for bankruptcy

Bankruptcy often causes a big hit on your credit reports, but that does not mean you should be careless about your credit now. Here are a few important tips to keep in mind after filing bankruptcy.

Check the discharged accounts – Make sure the correct accounts were reported and discharged as part of your bankruptcy. Notify the bureaus of any mistakes you find on your reports to have them removed.

Take credit opportunities when they come – building credit can be hard during this period. Take sound credit opportunities as they come, such as a department store credit line.

Rebuild credit with a secured card – secured credit cards use your own money as collateral. They are a safe way for lenders to allow you to build your credit until; they can assure your creditworthiness again.

Review your reports – When the bankruptcy is due to fall off your report, review your credit report manually to be sure the bankruptcy and any charged-off accounts were removed.

Final thoughts

Bankruptcy can cause lasting damage to your credit score. A bankruptcy will stay on your reports between 7 and 10 years. There are a number of things you can do to soften the blow of the bankruptcy. If you start repairing your credit today, you’ll be in a much better place when the bankruptcy falls off your report.

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