A bankruptcy can be a huge financial blow, and if you are thinking of filing for either Chapter 7 and Chapter 13 bankruptcy, you may be curious about how long it stays on your credit report. The amount of time a bankruptcy remains on your credit report depends on the type of bankruptcy you are filing. And unfortunately once bankruptcy is filed it cannot be removed from your credit history earlier than that period. Keep reading to learn more about how long a bankruptcy impacts your credit.
The Difference Between Chapter 7 and Chapter 13 on Your Credit Report
Chapter 7 bankruptcy is the most common type of bankruptcy for consumers, where most unsecured and secured debt goes away. While with Chapter 13, you can come up with a payment plan with your existing debts.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, they will remain on your credit reports for a few years with all three credit bureaus. Chapter 7 will stay on your credit reports for ten years, while Chapter 13 will stay seven years from the bankruptcy filing date.
How Does Having a Bankruptcy on Your Credit Reports Impact Your Score and Finances?
Any bankruptcy as part of your credit history will negatively impact your finances in several ways. First and foremost, your credit score will likely drop anywhere between 130 to 150 points. The most common type of credit score model used is a fico score, and when you check your scores, you will likely see this model. If you aren’t familiar with a fico score, credit tiers are 50 points apart. This means that a 130 to 150 drop can ruin an excellent score.
Your credit scores may seem just like a number that lenders and creditors look at. But they can impact more than just your ability to get a loan. If you think about buying a home, or a car, a loan is often involved with that. Renting a place and even getting a job can all be impacted by your credit scores. And so, if you are thinking of bankruptcy, consider its effect on your finances and life.
How Long Will It Take To Repair Your Credit After Bankruptcy?
If you do end up filing for bankruptcy, your credit score will be largely damaged. The good news is that with bankruptcy, debt discharge means your credit will recover over time. With Chapter 7, this naturally occurs usually in two years after filing. With Chapter 13, it takes about a year with chapter 13 bankruptcy. Along with that, there are things you can do that have a greater impact in repairing your credit score.
Ways To Rebuild Credit History After Bankruptcy
Here are some credit repair tips that will help you recover after filing for bankruptcy:
Pay Your Bills on Time
One of the best ways to rebuild your credit scores is to make all your monthly bill payments on time, especially with loans and credit card debt. Payment history is the most impactful factor with a credit score, so making on-time payments will be a great way to improve things relatively quickly. Any late payments will stay on your credit report for up to seven years.
Avoid High-Interest Loans if Possible
When you have bad credit, you may only have access to bad credit loans like a payday loan online or a title loan. Although these loans can help you get funding with bad credit, they also have incredibly high-interest rates. Which can lead to a cycle of debt even after declaring bankruptcy.
Monitor Your Credit Reports From All Three Credit Reporting Companies
Another important thing you should do when working on your credit is to monitor your credit reports. Your credit reports can sometimes have errors and inconsistencies that can hurt your scores until they are fixed. Any mistakes can hinder your progress if you are trying to get a good credit score.
Get a Credit Builder Loan or Secured Credit Card
A credit builder loan or secured credit card can be great tools for building credit through lending. With a credit builder loan, you will make monthly payments before you get the funds. Each loan payment will be reported to all three major credit bureaus. A secured credit card is similar in that it helps you build credit with its payment history. With a secured credit card, you must add funds before using it and making payments. If you can make monthly payments, the credit card issuer may issue you credit.
Getting a Cosigner to Diversify Your Credit Mix
Your credit mix is essential to your credit portfolio, and diversity can increase your credit score. Unfortunately, having a bad credit score can make it difficult to access credit from personal loans, mortgages, car loans, bank loans, etc. However, adding a cosigner to a loan application can increase your chances of getting approved for a loan. On the other hand, it is crucial to remember that too much debt can negatively affect your credit score—more on that below.
Be Mindful of Your Credit Utilization Rate and Keep it Low.
Another thing to keep in mind is that your credit utilization ratio will greatly impact your credit scores. Your credit utilization is the amount of available credit in proportion to the amount of debt you have. Adding more debt can harm your credit, while having available credit can help. This is why tracking things like your credit limit with revolving credit like a traditional credit card is essential. Additionally, keeping paid-off accounts open can really help your score.
Alternatives to Bankruptcy for Consideration
Bankruptcy should be your last resort when you cannot pay your bills; there are other alternatives you can consider. Here are some options to consider instead of filing for bankruptcy:
Sell Some Stuff / Liquidate Your Assets
Most people have some stuff they can sell for some extra cash. If you have trouble paying necessary bills, getting rid of some old stuff can help you get the money you need to pay off debt. Things like electronics, home improvement tools/appliances, cars, jewelry, gently used clothing and accessories, etc., may sell reasonably quickly for a good amount of money. If you have any CDs, real estate, stocks, or other assets, you can consider liquidation to take care of large debts.
Get a Side Gig
Another thing to consider that can help you avoid bankruptcy is to get a temporary side gig to supplement your income. Depending on your skills and experience, you may be able to do some freelance work from the comfort of your home. Or you can take on things like dog walking, ride sharing, or delivery services to earn money quickly without going through an interview process.
Negotiate Your Debts with Existing Creditors and Lenders
Most of the time, existing lenders/credit card companies may be open to negotiate a repayment plan if your financial situation has changed. And so, before you jump to bankruptcy, contact them to see if something can be worked out. Sometimes a Debtor will also accept a lump sum payment for the debt.
Consolidate Your Debts
Another option that can work when you are overwhelmed with debt is to get a debt consolidation loan. You can use one of these to pay off multiple loans or credit cards. That way, you are only left with one monthly payment to pay off while your other debts are paid off. With the right debt consolidation loan, you may get a reasonable interest rate and flexibility with repayment. Once other debts are paid off, you may see an increase in your credit score.
The Bottom Line With Bankruptcy on Your Credit Report
If you are filing for bankruptcy, you may wonder how long it will stay on your credit report. How long a bankruptcy stays on a credit report depends on the type of bankruptcy you are filing. A Chapter 7 bankruptcy will remain on your credit record for 10 years, while Chapter 13 stays on for seven. After you file for bankruptcy, you can take steps to improve your credit over time while you wait for it to be removed from your credit history. Once a bankruptcy falls off, expect an increase in your credit score.
References:
What Happens to Your Credit Score After Bankruptcy?
