People struggling with debt may benefit from filing for bankruptcy. Still, many people will put off considering bankruptcy out of concern for how the filing will affect their credit.
Obviously, a bankruptcy discharge will have a negative impact on your overall credit score. However, the impact might be less than what you imagined.
Although some people think of bankruptcy as being an indefinite blemish on their credit, it will eventually come off, just like any other negative mark. Bankruptcy can actually set you up to rebuild a better credit score in the long run. How long does bankruptcy impact your credit score?
The form of bankruptcy determines how long it’s on your credit report
Most credit blemishes will come off of your credit report seven years after a company initially reports them to the credit bureaus. However, the rules for bankruptcy are different than the rules for other credit issues.
The length that the public record from the courts will stay on your credit report depends on which kind of bankruptcy you file. Those who file Chapter 7 bankruptcy, or liquidation bankruptcy, will have the record of their discharge reported for 10 years after the date of discharge.
Given that those who file Chapter 13 bankruptcy and receive a discharge make a lengthy effort to repay their creditors prior to discharge, the mark from bankruptcy will stay on their credit report for only seven years. However, the total impact of the bankruptcy will likely still be a full 10 years, as most Chapter 13 repayment plans require at least three years of payments by the person filing.
The impact of your bankruptcy diminishes over time
Even before the bankruptcy comes off of your credit report, you may find that you qualifiy for decent financing terms. Most people can secure credit cards and car loans within a few months of discharge. Within a few years, bank loans and mortgages may be possible.
By the time you are in the final years of the bankruptcy being on your credit report, you can likely expect that it will merely drag down your score a bit, not prevent you from the best credit opportunities. Talking about your financial circumstances in depth can give you a better idea about whether the impact of bankruptcy on your credit score is a reason to delay or avoid filing.