Numerous concerns about bankruptcy prevent many people from filing in a timely matter when they need financial relief. For example, some people worry that they cannot balance their budgets without revolving lines of credit. The temporary setback related to the closure of credit cards might make bankruptcy seem less beneficial than it actually is.
Other times, it is the credit report impact that bankruptcy has that may hold people back from seeking relief from their overwhelming debt. Bankruptcy is a major blemish on someone’s credit report. Lenders might deny applications because of a recent prior bankruptcy or offer someone less favorable terms because of a discharge on their credit report.
How long might a bankruptcy discharge affect someone’s financial opportunities?
There are different rules for different bankruptcy cases
The average late payment or collection account is subject to strict credit reporting limitations. Generally speaking, creditors can only report a specific debt for seven years after initially sending information about it to the credit bureaus.
Bankruptcy can help people improve their long-term credit by replacing numerous delinquent accounts and other negative marks on their credit reports with a single note about their bankruptcy discharge. How long the credit bureaus can provide lenders with information about a bankruptcy depends on the type of bankruptcy and individual pursues.
A Chapter 7 bankruptcy is relatively quick and does not involve any structured attempts to pay creditors before the discharge, so the credit bureaus can maintain the record of the discharge for 10 years after the courts grant it.
If someone files for a Chapter 13 bankruptcy, they spend at least three years making monthly payments as part of a repayment plan. The discharge at the end of that process typically only appears on someone’s credit report for seven years.
The good news for those in need of financial relief is that the impact a bankruptcy discharge has on creditworthiness diminishes a bit every year. The more aggressively someone works to rebuild their credit, the sooner they may qualify for better credit opportunities after their discharge.
Many people start receiving credit card offers within a few months. Larger financial instruments, including vehicle loans and mortgages, might be available after just a few years. Feeling nervous about the negative impact of a personal bankruptcy filing is perfectly normal. Prospective filers who learn about the credit impact of bankruptcy may be able to make the most of their filing while diminishing its negative consequences.
