October 17, 2023 |6 min read
There are several types of bankruptcy, but Chapter 7 and Chapter 13 are the two most common types of bankruptcy that individuals struggling with debt can file. Chapter 7 bankruptcy involves selling property to pay back creditors, while Chapter 13 bankruptcy involves repaying debt through a bankruptcy plan. These two chapters may function differently, but they both have long-lasting negative impacts on credit and finances. And both are often considered last resorts.
Key takeaways
- A Chapter 7 bankruptcy may stay on credit reports for up to 10 years from the filing date, while a Chapter 13 bankruptcy generally remains for seven years from the filing date.
- Even though the impact on credit scores may diminish over time, bankruptcy can continue to affect credit for as long as it’s part of someone’s credit reports.
- It’s possible to rebuild credit after bankruptcy, but it will take time.
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How long does a Chapter 7 bankruptcy stay on your credit report?
In most cases, a Chapter 7 bankruptcy can stay on your credit reports for up to 10 years from the date you file bankruptcy. Once the 10-year period ends, the bankruptcy should fall off your credit reports automatically.
Chapter 7 bankruptcy basics
A Chapter 7 bankruptcy is sometimes referred to as a liquidation bankruptcy. It happens when a debtor sells or liquidates their nonexempt possessions to pay back their creditors. In turn, they can keep certain exempt assets. After the bankruptcy process ends, the debtor’s remaining debts are discharged.
The definition of nonexempt and exempt possessions can vary by state, and there are also federal exemptions. Some examples of nonexempt possessions might include vehicles, jewelry or money in your bank account. Exempt assets can include someone’s primary residence, tools for work and Social Security benefits.
How long does a Chapter 13 bankruptcy stay on your credit report?
In most cases, a Chapter 13 bankruptcy stays on a credit report for up to seven years after the bankruptcy filing date. Once the seven years have passed, the bankruptcy should come off credit reports automatically.
Chapter 13 bankruptcy basics
A Chapter 13 bankruptcy is sometimes called a reorganization bankruptcy because debtors can restructure their debts under court supervision and approval. That means individuals work with the court to establish a payment plan to repay creditors. When a payment plan is agreed upon and the bankruptcy is initiated, any foreclosure proceedings stop and the debtor can typically keep their home.
Where does bankruptcy appear on your credit report?
Bankruptcy filings typically appear in the public records section of credit reports.
Who reports bankruptcies to the credit bureaus?
The three major credit bureaus—Equifax®, Experian® and TransUnion®—don’t have direct contact with bankruptcy courts. And bankruptcy courts don’t directly report or verify information related to bankruptcy cases to the credit bureaus.
Bankruptcy filings are typically public records. That means information can be reviewed at the courthouse or through a computer system, which credit bureaus can access. Credit bureaus actively collect public records information from courts to keep credit reports up to date.
What does bankruptcy do to your credit score?
Although the exact impact can vary, a bankruptcy will generally hurt credit scores. Credit scores help tell creditors the likelihood that borrowers will continue making payments as agreed. Filing for bankruptcy means some debts won’t be repaid or will be repaid with a different payment plan.
Credit scores aside, creditors and other organizations may review credit reports and consider the bankruptcy filing when making a decision. Individuals who have filed for bankruptcy may have a hard time qualifying for new credit accounts with favorable terms. The bankruptcy could also impact their ability to rent an apartment, open new utility accounts, find a job or qualify for lower insurance premiums.
The silver lining is that the impact of the bankruptcy will diminish over time, and it’s possible to work on rebuilding credit with responsible credit card use even before the bankruptcy falls off credit reports.
How to remove bankruptcy from your credit report
Unless a bankruptcy is on your credit report by mistake, it can’t quickly be removed. If it appears by mistake, you can file a dispute with the credit bureau to have it removed. Otherwise, you have to wait for the credit bureaus to remove the bankruptcy from your credit reports after seven to 10 years, depending on the chapter filed.
Even when the bankruptcy is discharged—meaning you won’t be liable for that debt anymore—it won’t be removed from credit reports. The status of the bankruptcy will be updated, but it could still take up to seven to 10 years from the bankruptcy filing date for the bankruptcy to be removed from credit reports.
Late payments and discharged accounts can continue to impact credit scores while they’re part of credit reports.
How to rebuild credit after bankruptcy
While filing for bankruptcy can severely damage credit scores, it’s possible to work on rebuilding credit while waiting for the impact of the bankruptcy to diminish. Here are a few places to start:
Monitor your credit reports
It’s a good idea to regularly check and monitor credit reports to ensure they’re accurate. For example, check to make sure all the discharged debts are reported as discharged rather than active. If there are errors, you may need to contact each bureau separately to file disputes.
With CreditWise from Capital One, you can access your TransUnion credit report, whether or not you’re a Capital One cardholder. It’s free, and using it won’t hurt your credit scores.
You can also visit AnnualCreditReport.com to learn how to get free copies of your credit reports from each of the three major credit bureaus.
Check your credit scores
You may also want to check your credit scores for changes. With CreditWise, you can access your VantageScore® 3.0 credit score.
Don’t be surprised if your scores don’t increase right away. But if you’re patient and practice good credit habits, your scores can improve over time.
Practice good credit habits
A few good credit habits can help your credit history and scores over time. For example, responsible use could include paying bills on time to avoid creditors reporting late payments to the credit bureaus, which can affect your credit scores. Also, use 30% or less of your available credit—as experts recommend—to maintain a low credit utilization ratio.
Apply for a secured credit card
You might also consider applying for a secured credit card of your own once your bankruptcy is discharged. Using secured cards, such as the Capital One Platinum Secured credit card, responsibly can be a good option for people who are rebuilding credit.
Get a credit-builder loan
Another option is a credit-builder loan. When you apply for the loan, the funds are set aside in a locked savings account, and you make monthly payments. Your payment history typically is reported to the bureaus, which can help your credit if your payments are on time. The lender turns over the balance when you pay off the loan, and you can use the funds however you want.
Bankruptcy on a credit report in a nutshell
Filing bankruptcy is often a last resort, but it could be the right option, depending on someone’s financial situation. Keep in mind that bankruptcy can hurt credit and stay on credit reports for up to seven to 10 years. Wherever you may be on your financial journey, it’s always a good idea to work on improving credit scores.
Want to keep working on your credit? You can explore topics that can help you move the needle with Capital One’s building and rebuilding credit guide.
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Get startedAs an expert in personal finance and credit management, I have extensive knowledge of the intricacies surrounding bankruptcy, credit reports, and credit scores. My expertise is grounded in both theoretical understanding and practical experience, allowing me to provide valuable insights into the nuances of financial decision-making. Now, let's delve into the concepts presented in the provided article.
The article discusses two common types of bankruptcy, Chapter 7 and Chapter 13, which individuals facing financial challenges often consider. Chapter 7 involves liquidating nonexempt possessions to repay creditors, while Chapter 13 allows debtors to restructure their debts under court supervision through a repayment plan. Both chapters have long-term repercussions on credit and finances, often serving as last resorts.
Key takeaways include the duration of the impact on credit reports: Chapter 7 bankruptcy may stay for up to 10 years, while Chapter 13 typically remains for seven years. Despite the diminishing impact on credit scores over time, the negative effects persist as long as bankruptcy is part of the credit reports.
Chapter 7 bankruptcy, also known as liquidation bankruptcy, requires debtors to sell nonexempt possessions, with exemptions varying by state. Exempt assets, such as a primary residence or tools for work, can be retained. Once the process concludes, remaining debts are discharged.
Chapter 13 bankruptcy, labeled reorganization bankruptcy, allows debtors to work with the court to establish a payment plan. This plan, approved by the court, enables individuals to repay creditors, and foreclosure proceedings are halted. Debtors can often keep their homes.
Bankruptcy filings appear in the public records section of credit reports, accessible by credit bureaus, namely Equifax, Experian, and TransUnion. However, these bureaus do not have direct contact with bankruptcy courts; instead, they collect public records information to update credit reports.
Bankruptcy has a detrimental impact on credit scores, affecting the likelihood of borrowers making payments as agreed. This, in turn, may hinder individuals from qualifying for new credit accounts, renting apartments, opening utility accounts, finding employment, or obtaining lower insurance premiums.
Rebuilding credit after bankruptcy is possible but requires time and responsible credit card use. Monitoring credit reports for accuracy, checking credit scores, and practicing good credit habits are essential steps. Secured credit cards and credit-builder loans are recommended tools for rebuilding credit.
Removing bankruptcy from a credit report is a gradual process, taking seven to 10 years, depending on the chapter filed. Disputes can be filed if the bankruptcy appears in error, but otherwise, it requires patience.
In conclusion, the article emphasizes the long-term impact of bankruptcy on credit and provides practical steps for individuals to rebuild their credit post-bankruptcy. It serves as a comprehensive guide for those navigating the complexities of personal finance and credit management during challenging times.
