A personal bankruptcy case is one of the most serious credit blemishes possible. The courts typically advise the credit bureaus of a pending bankruptcy case the same day that a person files. Their score may drop by as much as 200 points if they had previously managed their finances without missing payments despite struggling.
Every time they apply for a new job or a line of credit, the parties checking their credit report can see that they previously filed for bankruptcy. That one blemish could be the deciding factor regarding a job opportunity or a mortgage.
How long can a record of a bankruptcy limit a person’s credit opportunities?
There are credit reporting limitations
The good news for those considering personal bankruptcy is that the record of their discharge is a temporary blemish. A Chapter 13 bankruptcy requires the completion of a multi-year payment plan. The credit bureau should treat a Chapter 13 discharge like any other credit blemish, meaning that it disappears from a credit report after just seven years.
The reporting timeline is a bit longer in cases involving a Chapter 7 filing. The credit bureaus may report the bankruptcy case for up to 10 years after the filer’s discharge. Most people who pursue new lines of credit and make timely monthly payments after a bankruptcy can increase their credit scores to where they were before the bankruptcy or may even manage to increase their score beyond what it was previously.
Learning more about the rules for bankruptcy and the impact it can have on a filer can give people the confidence to take action. Bankruptcy is only a temporary setback for an individual’s creditworthiness.