Many people put off or avoid bankruptcy because they worry about credit-related repercussions. They know that they will need to buy a vehicle in the near future or they hope to buy a house. They don’t want their current financial struggles to prevent them from having access to such opportunities.
It’s true that bankruptcy results in two noteworthy consequences on someone’s credit. As soon as someone files, the courts will send notice out to the credit bureaus. Most lenders will immediately shut down or freeze any revolving lines of credit that an individual could still utilize. Filers, therefore, have to brace for an inability to use their credit cards.
At the same time, their credit score will drop significantly. The credit bureaus will inform any prospective lender about their prior bankruptcy filing for years to come. The exact credit consequences of a bankruptcy depend on the type of bankruptcy that someone files.
Chapter 7 bankruptcy concerns
Most issues on someone’s credit report, including missed payments, will only be visible for seven years after the creditor first reports the matter. After that, even if someone has not resolved the debt, it will come off of their credit report. There are similar credit reporting rules for a bankruptcy filing. However, Chapter 7 bankruptcy is one of the rare situations in which a credit blemish will show up for more than seven years. If someone is successful, the record of their discharge will be visible for 10 years after their discharge. Thankfully, the impact of that record will decrease – often significantly – as soon as filers start rebuilding their credit post-bankruptcy.
For example, it is possible to obtain secured credit cards shortly after bankruptcy to start rebuilding credit. Many people can qualify for vehicle financing and sometimes even home loans as shortly as two years after their initial discharge. The more someone focuses on rebuilding their credit and the more time that lapses after their bankruptcy, the less of an impact their prior financial struggles will have on their future financial opportunities.
Learning more about the rules that govern bankruptcy matters in the United States may benefit those contemplating Chapter 7 bankruptcy as a way to regain financial control. Seeking legal guidance is a good way to secure valuable clarity in this regard.