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How long will bankruptcy affect your credit for?

If your debts are mounting and you have no easy way to pay them off, filing bankruptcy can provide you long-term financial relief. Yet, it can also create financial challenges in the short-term, especially related to your credit. Because your bankruptcy will appear on your credit report, it will impact your credit score and creditworthiness. Its cumulative effects, though, will depend on your pre-bankruptcy credit health, as well as which chapter of bankruptcy you file.

The relationship between bankruptcy and credit

The effects your bankruptcy has on your credit will, in part, depend on your current credit score. If you have fair or poor credit, it is unlikely that your credit score will drop by much after you file bankruptcy. Yet, if you have good credit, filing bankruptcy could cause it to fall significantly.

Your bankruptcy’s impact on your credit will also depend on which chapter you file. While Chapter 13 bankruptcy will remain on your credit report for seven years after you file it, Chapter 7 bankruptcy will remain on it for 10 years. This difference is due to how each type of bankruptcy affects your debts. In Chapter 13 bankruptcy, you will follow a plan – lasting three to five years – to repay your creditors. In Chapter 7 bankruptcy, however, you will forfeit your non-exempt assets to a bankruptcy trustee, who will liquidate them. Your bankruptcy trustee will satisfy your creditors with the proceeds from your assets’ sale. Because you will discharge your debts – rather than repay your creditors – in Chapter 7 bankruptcy, lenders may consider it more of a mark against you than Chapter 13 bankruptcy.

Rebuilding your credit after bankruptcy

While your credit will take a hit after you file bankruptcy, you may find that you will have an easier time rebuilding it once you discharge or repay your debts. Keep in mind that it will take time for your credit score to improve. Yet, depending on your habits, it could start increasing one to two years after your bankruptcy case discharges.

Though bankruptcy can harm your credit, you have ways to recover from its impact. To understand your options for moving forward, you will want to consult an attorney with experience in bankruptcy law.