Everyone knows that filing for bankruptcy will drag down their credit score. However, there are myths going around about the exact impact that a bankruptcy filing will have on your credit report and score.
While you can expect an immediate and noticeable reduction in your score, the negative impact of your bankruptcy filing will decrease a little bit as time goes on. Especially if you work hard to establish a record of positive credit use following your bankruptcy, you can potentially rebuild your score by the time your bankruptcy discharge comes off of your credit report.
How long will bankruptcy continue to affect your credit score?
The kind of bankruptcy you file determines how long it stays on your record
Some people believe that a bankruptcy discharge will remain a significant blemish on their credit report for the next decade. However, that is not necessarily true. Information about your bankruptcy filing will appear on your credit report shortly after you submit paperwork to the courts.
However, it is the discharge of your debts that will stay on your credit report for years. If you qualify for a Chapter 7 bankruptcy filing, then the discharge will stay on your credit report for a full 10 years. However, those who filed for Chapter 13 bankruptcy and completed a repayment plan will not have the discharge on their credit report for as long. A successful chapter 13 bankruptcy discharge will only remain on your credit report for seven years after the date of your discharge.
What happens when the bankruptcy comes off your credit report?
If you have taken steps to rebuild your credit already, by the time your bankruptcy is about to come off of your record, your score may already be close to where it was before you filed or started having financial issues.
Bankruptcy is a big blemish, so when it falls off of your credit report due to age, its absence may quickly lead to a significant increase in your credit score. It will also improve the credit offers you receive, meaning you qualify for better financing terms.
Learning about the bankruptcy process can help you accurately weigh the benefits and drawbacks of filing.