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How long does personal bankruptcy affect someone’s credit?

On Behalf of | Oct 16, 2023 | Bankruptcy |

Personal bankruptcy exists to help people regain control of their finances and move past a short-term period of financial hardship. Without bankruptcy, a job loss or medical emergency could cause someone to struggle financially for the rest of their life.

Bankruptcy stops most collection activity and will lead to a discharge of someone’s qualifying debts when they successfully complete the process. Yet, despite how beneficial bankruptcy can be for those experiencing financial challenges, many people feel a strong aversion to the idea of filing for this form of debt relief. They may, for example, worry that a bankruptcy on their record will impact their credit opportunities. While it is true that a bankruptcy will be on someone’s credit report for years, the impact will decrease with time and eventually end entirely.

How long does bankruptcy impact someone’s credit score?

A bankruptcy will instantly drag down someone’s credit rating, often by more than 200 points. Lenders will typically freeze or close lines of credit in response to a bankruptcy filing to avoid a situation in which someone continues adding to a balance with no intention of repaying what they owe.

Most people who successfully complete the bankruptcy process will become eligible for credit cards within a few months of their discharge. Better credit opportunities will arise after a few years at most, provided that filers begin rebuilding their credit as soon as possible.

Of course, the credit offers that someone will receive after a bankruptcy won’t be quite as generous as the credit offers made to those with no bankruptcy on their record. Thankfully, the credit bureaus can only report the bankruptcy for a set amount of time. A Chapter 7 bankruptcy will come off of someone’s credit report after 10 years. A Chapter 13 bankruptcy will only show up on someone’s credit report for seven years after their discharge.

At that point, someone’s bankruptcy will no longer influence their ability to secure lines of credit or the terms that lenders offer them. Those who seek new lines of credit as soon as possible after a discharge may have an easier time rebuilding their credit than those who refuse to use credit at all after a bankruptcy filing.