How does bankruptcy affect your Credit Report?

May 25, 2010

Author: William M. Davis

There is no doubt that bankruptcy deals a devastating blow to your credit and your credit score. Anyone who has had a bankruptcy can tell you that it is best to only consider bankruptcy as your last option available to you. But sometimes when our finances reach a certain point and bankruptcy is the best solution then filing for bankruptcy can provide relief to some extent. It will no doubt halt the never-ending harassment from collecting agencies, collection phone calls, creditors and those non-stop collection notices. However, the after effect of having a bankruptcy on your credit nonetheless is devastating and leaves a black mark on your credit report for a long time.

How long does a Bankruptcy remain on my Credit?

A Chapter 7 bankruptcy will remain on your credit report for 10 long painful years from the date of filing. A Chapter 13 may stay on your credit for 7-10 years. This can be very devastating especially in the society we live in today where so many of us buy on credit or have to have credit to just get by.

Two Types of Bankruptcy

1. Chapter 13 Bankruptcy

Chapter 13 Bankruptcy will not discharge your obligations, but allows you to work out a payoff plan that you can handle. Chapter 13 is there to assist those who have a temporary financial situation such as a catastrophic illness or loss of employment.

A Chapter 13 will still have a negative effect on your credit report but it also shows that you are taking responsibility and living up to your obligations by continuing to pay your debt rather than having them discharged. This is recommended especially for those who still have a regular income and don’t want to have a discharge on their credit. With a Chapter 13 bankruptcy, you are able to obtain new credit within a year or so.

2. Chapter 7 Bankruptcy

Having a Chapter 7 bankruptcy is the worst thing you could have on your credit report. Chapter 7 makes life extremely difficult especially when credit is involved. It makes obtaining new loans and credit cards difficult to get for at least a few years or sometimes even longer.

The after-effects of Filing for Bankruptcy

The effects of bankruptcy on your credit will depend on the type of bankruptcy you file.

• After two years of being discharged, you may be able to obtain a home loan with a Chapter 7 on your record
• It will take about one year after filing a Chapter 13 bankruptcy to obtain a home loan.
• Revolving charge accounts or credit cards will be extremely difficult to get because they are based on each lender’s credit standards.

Did you or do you know someone who filed for bankruptcy? Tell us about your experience.