There are both benefits and drawbacks to filing for personal bankruptcy. The largest benefits include the automatic stay that puts an end to aggressive collection activity and the discharge of someone’s debts after the completion of the bankruptcy process. The downsides include the loss of revolving lines of credit as soon as someone files and the impact that a bankruptcy discharge has on someone’s credit score.
People often see a very large drop in their overall credit scores after a bankruptcy discharge. Of course, that discharge can replace numerous other bad accounts and blemishes. Their score will slowly improve as they make on-time payments and as more months pass after their discharge. However, lenders may still hesitate to offer the best terms possible when there is a record of the bankruptcy still showing up on someone’s credit report – at least while the date of discharge remains quite recent. The impact of bankruptcy will lessen over time even when that score remains visible on a filer’s report, as long as they’ve engaged in responsible borrowing approaches since their case has been resolved.
Credit reporting rules for bankruptcy are different
Most standard debts, including past-due balances on accounts and debts that have gone to collections, will only remain visible on someone’s credit report for seven years after the creditor initially reports the matter to the credit bureaus. However, bankruptcy discharges have different rules. After a successful bankruptcy filing, the record of someone’s discharge will continue to limit their credit opportunities for multiple years. How long creditors will see the record of the discharge will depend on the type of bankruptcy that someone files.
A Chapter 7 bankruptcy will be visible for 10 years after the date of someone’s discharge. A discharge from a Chapter 13 bankruptcy, which usually involves a lengthy repayment plan that will last three or five years, can come off of someone’s credit report seven years after a filer’s discharge.
Typically, the credit impact of bankruptcy records diminishes over time before coming off of someone’s report entirely. Those who understand the long-term implications of filing for bankruptcy will be in a better position to make an informed decision about their debt management and debt relief options.