If your debts become overwhelming, you may need to declare bankruptcy to get your finances back under control. However, one of the problems with declaring bankruptcy is it will show up on your credit report for many years.
This not only makes it harder to qualify for loans, but it could also get in the way of landing a job or renting an apartment.
Fortunately, the credit agencies will eventually remove your bankruptcy declaration from your credit report. The amount of time it will take depends on what type of bankruptcy you declare.
1. Filing Chapter 7 bankruptcy.
When you declare Chapter 7 bankruptcy, you discharge all your debts.
As part of this process, the courts will appoint someone as bankruptcy trustee to manage the process. This trustee will use most of your liquid assets (savings, investments, etc.) to pay off as much of your debts as possible.
You’ll be able to keep a few items like your personal residence, but most of your assets will be sold. After that, your creditors can no longer collect payment and you can walk away from the remaining debts.
A Chapter 7 declaration stays on your credit report for 10 years.
“Agencies will remove a Chapter 13 bankruptcy
from your report after seven years.”
2. Filing Chapter 13 bankruptcy.
Individuals can also declare Chapter 13 bankruptcy. When you file Chapter 13, you don’t walk away from your debts.
Instead, your bankruptcy trustee sets up a new repayment plan between you and your creditors. In exchange, you get to keep your assets, unlike Chapter 7.
Filing Chapter 13 is a less extreme step than Chapter 7, so it doesn’t hurt your credit report as badly. The credit rating agencies will remove a Chapter 13 bankruptcy from your report seven years after your declaration.
3. All you can do is wait.
Unfortunately, there is no way to speed up the process of removing a bankruptcy from your credit report. You can only wait for the required amount of time to go by.
A bankruptcy isn’t the end of the world for your future credit applications. A bankruptcy will drop your credit score by 150 to 250 points. This is bad, but it’s a hit you can eventually recover from.
In addition, creditors will be more accepting of your bankruptcy as time goes by. A bankruptcy from five years ago isn’t as a big an issue as a bankruptcy from five months ago.
If you pick up good credit habits after your bankruptcy and avoid other mistakes, you’ll eventually be able to qualify for loans and credit cards even with a bankruptcy showing up on your report.
In a perfect world, you wouldn’t have to declare bankruptcy. However, if it’s necessary, at least feel reassured that one day you’ll be able to repair the damage.
Photo source: labialaw.com.
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