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How long can lenders see a bankruptcy discharge on a credit report?

On Behalf of | Apr 19, 2023 | bankruptcy |

Filing for personal bankruptcy can eliminate most or all of someone’s unsecured debts. The day that someone files, the automatic stay can help them end aggressive collection actions or pending lawsuits. The process can make it easier to renegotiate the terms for certain secured debts.

A successful bankruptcy filing leads to the discharge of qualifying unsecured debts, which can help people establish much more sustainable household budgets moving forward.

Of course, one of the trade-offs is the closure of someone’s unsecured lines of credit, which will limit their spending power for a time following bankruptcy. Filing for bankruptcy will frequently decrease someone’s credit score, thus limiting their options for obtaining new lines of credit.

Rebuilding credit after bankruptcy does take time and consistent effort, but people can get their credit scores back to where they were before their financial troubles and even strengthen them over time. Of course, their opportunities to rebuild their credit will remain limited for as long as creditors can see their recent bankruptcy filing on their credit report.

Bankruptcy comes off of a credit report eventually

Any lender that is considering granting credit to an individual will look carefully at their recent history of credit use. Bankruptcy is a good sign that someone hasn’t handled credit responsibly, which will mean that lenders may not approve someone or will offer them sub-optimal terms.

Bankruptcy would not likely lead to improved financial circumstances if the people who filed would never leave behind the stigma that comes from discharging personal debt. Reporting the bankruptcy discharge for longer than basic credit blemishes is the standard practice, but the bankruptcy will eventually come off of an individual’s credit report.

For those who secure a Chapter 7 bankruptcy, the discharge will remain on their credit report for 10 years. If someone files for Chapter 13 bankruptcy and completes a three-year or longer repayment plan, the credit bureaus will only report their discharge for seven years.

With that said, the overall impact that bankruptcy has on an individual’s credit score and ability to secure new lines of credit will decrease every year, especially if they make payments on time and establish a positive credit history following the closure of their bankruptcy case. Understanding the rules that apply to bankruptcy filings benefits those who are hoping to pursue financial freedom through a bankruptcy filing. In making the effort to understand the effects of bankruptcy, filers can make more informed choices moving forward.

Just because a bankruptcy is on your credit report does not mean you do not have credit. Within a few years of filing, you can usually increase your score significantly.