The decision to file for bankruptcy is one that’s usually made after careful consideration. It can bring immediate relief from the debts that you’re drowning in. As part of the bankruptcy process, all or part of the balances owed are discharged. This allows for a fresh financial start.
One question that some people have when they file for bankruptcy is how it will affect their credit history and creditworthiness. Bankruptcy is recorded on your credit report and remains there for a specific period time, which depends on what type of bankruptcy is filed.
What are the reporting requirements for bankruptcy on a credit report?
A Chapter 7 bankruptcy remains on the credit report for up to 10 years. This type of bankruptcy is known as a liquidation bankruptcy because you don’t make regular payments to the bankruptcy trustee. Instead, the trustee has the option of liquidating non-exempt assets to pay as much of the debt as possible. Any debts remaining are discharged at the end of the bankruptcy.
A Chapter 13 bankruptcy is typically reported for up to seven years. This is known as the wage earners’ bankruptcy because filers make regular payments to the bankruptcy trustee to pay off a specific part of the debt. Once the final scheduled payment is made, any balances remaining are discharged at the end of the case.
How does this affect creditworthiness?
Creditworthiness is often limited by a bankruptcy on the report. Lenders will often view applicants with bankruptcy as high risk and may opt to refuse to extend credit. As time moves forward, it’s often possible to rebuild creditworthiness. This often starts with opening secured lines of credit after the bankruptcy is discharged.
There are several things to consider if you’re thinking about filing bankruptcy. Discussing your case with someone familiar with these matters is beneficial.