How Long Does Bankruptcy Stay On Your Credit Report
Declaring bankruptcy isn’t nearly as taboo as it was even just 5 years ago. Still, it’s not something to be taken lightly as there are still serious implications for your credit score. You may find yourself unable to get a decent rate on a home or auto loan, if you can get a loan at all. Furthermore, with so many employers these days checking credit scores as part of the hiring process (one in six, according to the Wall Street Journal’s The Wallet blog), bankruptcy could cost you more than just a few hundred dollars in extra interest charges.
How Long Will A Bankruptcy Hurt Your Credit?
According to the Fair Credit Reporting Act (FCRA), the credit bureaus are officially allowed to list bankruptcy information for 10 full years as opposed to only 7 years for other negative credit items. That doesn’t necessarily mean the bankruptcy will stay on your credit report that long, however. There is some wiggle room depending mostly on which kind of bankruptcy proceeding was filed.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is normally only granted to individuals with virtually no assets or income and usually results in a complete discharge of all eligible debts. Credit card companies and other unsecured lenders hate Chapter 7 bankruptcy because it usually means they will receive at most pennies on the dollar for what they’re owed, if that. Debtors, however, definitely come out ahead, financially speaking. Unfortunately, very few people are granted complete Chapter 7 liquidation these days. Due to the complete liquidation of all eligible assets and complete discharge of all eligible debts, the credit reporting agencies are particularly severe with Chapter 7 bankruptcy filers, keeping the bankruptcy on your credit report for the full 10 year period.
Chapter 13 Bankruptcy
Where Chapter 7 bankruptcy generally results in the complete discharge of eligible debts, Chapter 13 bankruptcy is more akin to a debt reorganization process. Instead of being forced to sell all of your possessions to put towards your debt, you are generally allowed to enter into a court-mandated payment plan. You may be able to reduce the amount of principal you owe (along with the interest rate) but you will rarely get out of paying your debts completely. Due to the less severe nature of Chapter 13 bankruptcy and the fact that your creditors recover at least some of what they’re owed, most credit reporting agencies keep Chapter 13 bankruptcies on your credit report for only 7 years.
How Soon After Bankruptcy Will You Be Able To Get A Loan?
This is a difficult question. I’ve heard a number of people say they were able to get mainstream credit (i.e. not a payday or secured loan) as soon as 2 years after their debts were discharged, albeit at higher-than-average interest rates. That said, the current economic climate might make getting credit after declaring bankruptcy a bit more difficult than it once was.
Bankruptcy isn’t the end of the world, though. While the negative consequences can be significant, they do fade with time and you may find your bankruptcy ceases to negatively affect your finances long before it falls off your credit report. Still, you’re probably better with a little do-it-yourself debt reduction in lieu of bankruptcy if at all possible.