How Long Does a Bankruptcy Stay on a Credit File?

by Barb Nefer ; Updated July 27, 2017

Bankruptcy is a last resort for people buried in bills, according to the Federal Trade Commission (FTC). While it allows you to get rid of most or all of your loan debt, it also damages your credit and makes it difficult to open new accounts. You can't hide your bankruptcy as it will appear on credit reports from Equifax, TransUnion and Experian that lenders review when deciding whether to extend credit. Bankruptcies are considered both in your credit scores and during the credit application evaluation.

Types

Consumers usually file either Chapter 7 or Chapter 13 bankruptcy, the FTC explains. A Chapter 7 bankruptcy gets rid of most debt and liquidates the bulk of a person's assets by selling them, although furnishings, cars and certain other items may be exempt. Chapter 13 lets a person repay debts over three to five years through a court-approved plan and keep certain property like homes and vehicles.

Time Frame

Bankruptcy appears on a consumer's credit reports for ten years, according to the FTC. The records list the filing and discharge dates. Anyone who reviews the reports during that time frame sees this information. You can file another Chapter 13 bankruptcy after two years, but you must wait eight years after discharge to file another Chapter 7 bankruptcy.

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Effects

Bankruptcy hurts a person's ability to open new credit accounts and finance major purposes like homes and cars. The FTC warns that it is also more difficult to find employment or get insurance. New credit is necessary to overcome the negative effects. According to myFICO, rebuilding an on-time payment history on new accounts is very helpful because creditors give more weight to recent information. The bankruptcy loses its impact as time passes if recent accounts are in good standing. Don Taylor, a certified financial planner and Bankrate columinst, advises starting out with a secured credit card. Everyone qualifies because it requires a security deposit to cover the credit line.

Alternatives

Consumers have several options before they decide on bankruptcy, according to the FTC. They can often negotiate with creditors for better payment plans. myFICO advises working with legitimate credit counseling firms if negotiating help is needed. Some people are able to use debt management plans to pay off their bills within 48 months. Late payments made during the negotiation process remain on credit reports for seven years, which is three years less than bankruptcy.

Warning

Bankruptcies do not always drop off consumer credit reports automatically. The FTC explains that everyone is entitled to free annual report copies through annualcreditreport.com. People whose bankruptcies should have dropped off their reports should order copies to confirm this. They can file disputes with the Equifax, Experian and TransUnion credit bureaus to get the bankruptcies removed if they still appear after the allowable time frame.

About the Author

Based in Kissimmee, Fla., Barb Nefer is a freelance writer with over 20 years of experience. She is a mental health counselor, finance coach and travel agency owner. Her work has appeared in such magazines as "The Writer" and "Grit" and she authored the book, "So You Want to Be a Counselor."

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