Despite the warnings against bankruptcy, it won't hurt your credit score forever, but it may feel like it. Chapter 7 bankruptcy is considered by some the most attractive of the bankruptcy filings, because you can wipe out unsecured debts without paying a penny on them. As a slight punishment, the credit bureaus also get to report it longer than any other bankruptcy case.
Chapter 7 vs. Chapter 13
Chapter 7 comes off your credit report in 10 years, versus seven years for Chapter 13. This is because people who file Chapter 7 are in worse financial shape and cannot pay anything toward most of their debts. However, since it may take up to five years to complete the debt repayment plan, Chapter 13 cases can actually stay on a report for 10 years.
The credit bureaus can report a bankruptcy indefinitely when the borrower takes a great risk. This is usually limited to applications for a line of credit or life insurance policy worth more than $150,000 or a job that pays more than $75,000 per year, according to the Federal Trade Commission. However, according to John Ulzheimer of Smart Credit, rarely do the agencies exercise the right to report information indefinitely under the Fair Credit Reporting Act.
All is Not Lost
The bankruptcy on your report probably prevents you from gaining credit only during the first two to four years after you file the case. As long as you pay other debts and new accounts on time, you can usually regain much of the lost ground, because bankruptcies become less important day after day, while good payment history continues to boost your score.
A bankruptcy can only come off your report sooner than the federal reporting limit allows if it does not belong to you and you dispute it with the national bureaus. Thus, your only option is to start using credit again so you can build new accounts without a derogatory history. Go for a secured account, which requires a deposit to secure the line; banks almost always accept applications for these.
Russell Huebsch has written freelance articles covering a range of topics from basketball to politics in print and online publications. He graduated from Baylor University in 2009 with a Bachelor of Arts degree in political science.