How Long Will Bankruptcy Impact Your Credit?

You might have heard that bankruptcy gives you a clean financial slate, but that’s not exactly accurate. For those experiencing serious financial distress, bankruptcy can be a way to eventually restart. Depending on your financial situation, you can get rid of debts or restructure them.

But this doesn’t give you a clean slate, especially on your credit report. Bankruptcy is a negative item that can show up on your report and impact your credit score for years. Discover how long bankruptcy stays on your credit report and get the scoop on common bankruptcy myths below.

How Long Does Bankruptcy Stay on Your Credit Report?

Myth: Bankruptcy ruins your credit forever—or at least an entire decade.

The truth: Bankruptcies are considered public records, which is how they’re reported on your credit. The public record associated with a Chapter 7 bankruptcy will remain on your credit report for as long as 10 years. That time period starts on the date you file the bankruptcy petition.

Chapter 13 bankruptcyis different. It involves paying some money back to your creditors and typically take three to five years. However, it only stays on your creditfor around seven years from the petition filing date. That means that within two to four years after successfully finishing a Chapter 13 bankruptcy, it will fall off your credit.

Will a High Credit Score Help You During a Bankruptcy?

Myth: A clean credit history—one with no late payments or other issues—and a high credit score means you’ll be less impacted by a bankruptcy.

The truth: Bankruptcy will have a huge negative impact on your credit, and a previously positive payment history doesn’t change that. In fact, if you have a higher score, you could stand to lose more than if you already have a low score.

A bankruptcy also temporarily wipes out all the goodwill you might have developed with your timely payments. Some lenders may have rules about offering credit when a recent bankruptcy shows up on your credit history—no matter how good your score used to be.

Is My Credit Going to Be Bad as Long as a Bankruptcy Shows Up?

Myth: You might as well not even try because you’ll have poor or bad credit as long as the bankruptcy is on your record.

The truth: Yes, bankruptcy tanks your credit score in the short term. But how much a bankruptcy impacts your credit score depends in part on how old the record is. Like many other types of items reported on your credit file, bankruptcies lose some power over time. That’s especially true if you start managing credit and debt in a more positive way while you’re waiting for the bankruptcy to fall off your report.

Some ways to help positively impact your score after bankruptcy can include:

Adding new credit, such as secured credit cards or small installment loans, to offset the negative information on your credit report.
Making on-time payments for all debt, new and old.
Keeping your credit card balances under 30% utilization.

Are All Bankruptcies the Same When It Comes to Credit?

Myth: Bankruptcy affects the credit of all consumers who file equally, regardless of the amount of debt or the number of debts included.

The truth: Bankruptcies are far from created equal. As already stated above, some stay on your credit longer than others.

Creditors also tend to prefer to see Chapter 13 bankruptcies over Chapter 7 bankruptcies. That’s because Chapter 13 bankruptcy requires you to make some payment on your debt, so it demonstrates that you do try to pay your debts whenever possible. However, that doesn’t mean Chapter 13 is the right choice for everyone and every situation.

How much debt you have and how much is included in the bankruptcy can also make an overall difference on how your credit is impacted. In short, your credit is going to suffer, but there’s no single number that can be provided for how much it will drop.

Does Bankruptcy Wipe Your Credit Report Clean?

Myth: All bankruptcy debts will be wiped clean from your credit report.

The truth: While bankruptcy may help you erase or pay off past debts, those accounts will not disappear from your credit report. All bankruptcy-related accounts will remain on your credit report and affect your credit score for up to seven years or as long as they normally would, though their impact will diminish over time.

Can You Get Credit After a Bankruptcy?

Myth: You can’t get a credit card or loan after bankruptcy.

The truth: Credit cards are one of the best ways to build credit, and there are options out there for those with a checkered credit history. Secured credit cards, which require an upfront security deposit, have a lower barrier of entry but spend and build credit just like a traditional card.

Similarly, there are loans available—such as passbook, CD or credit builder loans—that are secured with a deposit or collateral and help you build credit as you pay them off. Like secured credit cards, these loans are much easier to come by because the lender is protected in the event you can’t pay. Do note that you may need to get permission from the court to take on new debt during a Chapter 13 repayment plan.

You Can Improve Your Credit After Bankruptcy

Don’t give up after you’ve filed for bankruptcy—you can improve your credit score. But be patient, because it could take some time. If you want a little extra help, sign up for our free credit report card, or consider ExtraCredit. Restore It, a feature on ExtraCredit, gives you an exclusive discount to one of the leaders in credit repair. They can help you work to get your score where you want it to be after you’ve filed for bankruptcy.