When the courts discharge the balances on your unsecured lines of credit in a bankruptcy filing, they absolve you of the obligation to repay those debts in the future. While your discharge will help you by freeing up your financial resources, it can also limit your credit opportunities for some time after you file.
Your credit report will inform all possible lenders about your previous bankruptcy. How long will your bankruptcy discharge continue to affect your credit opportunities?
The kind of bankruptcy determines the length of the record
How long your bankruptcy discharge stays on your credit report depends on the kind of bankruptcy that you filed. A Chapter 7 bankruptcy will stay on your credit report for 10 years. If you complete a Chapter 13 filing, your discharge will come off of your credit report seven years after the courts grant it.
The impact of bankruptcy on your credit diminishes over time
When you first file for bankruptcy and right after your discharge, you will have very limited credit options. At first, you may only get offers for secured credit cards that require a deposit and charge very high interest rates.
However, as you establish a positive credit history and your bankruptcy grows older, its negative impact on your overall credit score and future opportunities will decrease. Many people can obtain a credit card within the first year of their bankruptcy, although the terms likely won’t be excellent. You may qualify for bigger financing options, like vehicle loans or mortgages two to three years after your discharge.
Understanding how personal bankruptcy affects your credit can help you make an informed decision about whether or not to file. If you’re already considering bankruptcy, it may be wise to learn more.