If you are thinking of filing for Chapter 7 or Chapter 13 bankruptcy, or if you have already filed, you may be concerned about how long the bankruptcy will stay on your credit report.
There is a simple answer to this: It will stay on for ten years if you filed Chapter 7 bankruptcy and seven years if you filed Chapter 13. The difference is because, in Chapter 13 bankruptcy, you and the bankruptcy trustee make a structured plan to pay off most of your debts in 3-5 years.
However, your concern probably goes deeper than simply knowing the answer to the academic question of when your credit report will be bankruptcy-less. You likely want to know when you can start obtaining credit again and how your bankruptcy will affect what you want to do in the future. Bankruptcy is an emotionally charged process that leaves many people feeling anxious and insecure, but knowledge is power, and you may find that the future is brighter than you supposed.
Credit Scores:
If you had a high credit score before going into bankruptcy, you will find that it will drop by 100 or 150 points. This doesn’t mean that you can’t get credit; it simply means that companies may not offer you the lower interest rates they offer to their customers with high credit scores (say, in the 800s).
If you had a low credit score before going into bankruptcy (this is common for people who have been delinquent on bills or stopped paying completely), you may find that your credit score actually goes up a little after you have filed for bankruptcy. This is because you are eliminating the debts that were bringing down the score.
Credit Offers:
Just because you have a bankruptcy on your credit report does not mean that companies will not want to extend credit to you. Paradoxically, they may be eager to offer you credit cards simply because of your lower credit score. No, they are not suddenly feeling a rush or sympathy or altruism; they send offers for four main reasons:
- Once you have filed for Chapter 7 bankruptcy, you are not allowed to file again for up to eight years. The situation is more complicated with Chapter 13 bankruptcy. You can read details about this in our blog, Can You File for Bankruptcy Twice.
- If your current and past debts have been discharged, you are more likely to be able to pay off new debts.
- You will be anxious to regain good credit and are therefore likely to pay bills on time.
- Credit card companies will make more money from you because they will use your credit score as a reason to offer you a higher interest rate.
The Five Main Reasons People End Up Having to Claim Bankruptcy
- Medical expenses: A whopping 66.5% of bankruptcies in the United States are because of medical issues.
- Loss of employment: Three out of ten Americans do not have an emergency fund.
- Excess use of credit: Many people get in the habit of buying things they can’t afford.
- Divorce or separation: Legal bills and child support aside, it is always more expensive to maintain two households instead of one.
- Miscellaneous unexpected scenarios: These include house fires, floods, hurricanes, and earthquakes.
Rebuilding Your Credit Score
Many of the situations above are unavoidable, but as you work to rebuild your credit score, focus on #3 especially. This is a time to budget and conserve money.
- Double-check that all of the debts that were supposed to be forgiven are marked as discharged on your credit reports.
- If you notice any errors, write to the credit bureaus (Equifax, TransUnion, and Experian) to get them to fix the problems.
- Don’t put anything on a credit card that you can’t pay back in full each month when the bill comes.
- Pay any bills that weren’t discharged at the time of your bankruptcy (such as student loans) on time.
- Create a budget and build an emergency fund.
The Good News
If you work hard to take the right steps, your bankruptcy won’t disappear from your credit report, but your credit score will begin to improve within 12-18 months. It can even go from a low credit rating (under 579) to a fair credit rating (580-669).
Sawin & Shea Is Here to Help
No situation is completely straightforward, so don’t try to maneuver the intricacies of Indiana’s bankruptcy codes on your own. At Sawin & Shea, LLC, we understand that hiring an attorney to help you file bankruptcy is scary. We are committed to providing compassionate and non-judgmental representation to all of our clients. Our attorneys have helped thousands of people just like you get the fresh start they deserve. We are here to help.
