How long does a bankruptcy stay on your credit report?
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Updated 9:25 p.m. UTC July 16, 2023
Editorial Note: Blueprint may earn a commission from affiliate partner links featured here on our site. This commission does not influence our editors' opinions or evaluations. Please view our full advertiser disclosure policy.
Getty Images
Bankruptcy can be an effective tool to solving a financial crisis, but it comes with many downsides, including impacting your credit rating. Depending on which type of bankruptcy protection you enlist, your credit history could contain a serious black mark for seven or 10 years.
However, bankruptcy isn’t a death knell for your ability to borrow, and with good behavior you can improve your credit score over time.
Aura Individual
Disclosure
¹$1,000,000 Identity Theft Insurance for Eligible Losses: Identity Theft Insurance underwritten by insurance company subsidiaries or affiliates of American International Group‚ Inc.. The description herein is a summary and intended for informational purposes only and does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for terms, conditions, and exclusions of coverage. Coverage may not be available in all jurisdictions.
No one can prevent all identity theft or monitor all transactions effectively.
When is a bankruptcy removed from your credit report?
How long bankruptcy stays on your credit report depends on the type of bankruptcy you file. Chapter 7 bankruptcy will stay on your credit report for 10 years, while Chapter 13 bankruptcy will only stay on your report for 7 years.
Both will fall off your credit report automatically. You don’t have to request it.
If a debt was already delinquent before you filed for bankruptcy, meaning you fell behind on payments, it will come off of your credit report seven years from the day it became delinquent.
While bankruptcy does have a negative impact on your credit, there are clear reasons to consider it as an option.
“[Bankruptcy] establishes a solid foundation for consumers to rebuild,” said Markia Brown, a certified financial education instructor who specializes in credit. “It can provide relief from debt and allow you to look forward and focus on budgeting and building credit. It will also help stop creditor harassment, wage garnishment, foreclosure and repossession of assets.”
Though bankruptcy stays on your credit reports for up to a decade, its effects diminish over time. For example, a bankruptcy from nine years ago may have less of an impact on your credit scores than one from a year or two ago. Even if your bankruptcy occurred more recently, practicing good financial habits will give you a headstart on rebuilding your credit scores.
How bankruptcy affects your credit score
Bankruptcy will cause your score to drop significantly, though the exact number depends on your particular credit history. Typically, the higher the score, the bigger the fall. So someone with a FICO Score of 780, might see a drop between 200 and 240 points.
Moreover, lenders will be reluctant to extend credit to you and those that do will typically only offer credit at higher-than-average interest rates.
Consumers with lower credit scores also typically pay more for insurance, according to studies done by the Insurance Information Institute and the Federal Trade Commission. What’s more, landlords and employers will often check your credit score as part of your application, so having a lower credit score can hurt your chances of getting accepted.
However, the negative impact of bankruptcy will lessen over time, especially if you’re practicing smart financial habits to improve your score, such as paying off your balances each month and not using up too much of your available credit.
How does bankruptcy work?
Bankruptcy is a legal process that offers relief when you can no longer repay your debts, allowing you to clear some (or all) of your IOUs.
Many people declare bankruptcy due to financial hardship, such as from a job loss or a medical crisis. Filing for bankruptcy is a decision that shouldn’t be taken lightly, as it has long-lasting consequences for your finances. It’s a last resort to deal with overwhelming debt, once you’ve exhausted all other options.
If it’s the right thing for your situation, you generally need to complete credit counseling, consider hiring a lawyer, file paperwork and meet with your creditors all before a judge gives a final ruling and a possible discharge of debts. The exact process will vary based on your specific case, the state you live in and the type of bankruptcy you choose to file.
Chapter 7 bankruptcy versus Chapter 13 bankruptcy
While there are several types of bankruptcy, most individuals will either file for Chapter 7 or Chapter 13 bankruptcy.
Both types of filings can discharge unsecured debt, including credit card bills, medical bills, income tax debt and personal loans. Debts like child support, alimony and student loans typically can’t be discharged through any type of bankruptcy.
Chapter 7 liquidation bankruptcy involves selling your assets to pay off creditors. The assets sold can even include your home, typically depending on how much equity you have. This type of bankruptcy is more severe, harder to get and only available to those who meet income requirements.
Chapter 13 reorganization bankruptcy allows you to keep certain assets while paying back creditors over a three-to-five-year period. Those with a regular income typically utilize this type of bankruptcy, as it discharges some debt, making the rest manageable.
How to rebuild your credit after bankruptcy
Bankruptcy won’t affect your finances forever, but repairing the impacts on your credit will take time. Here are some steps to help rebuild your credit after bankruptcy.
1. Manage your income and expenses
You likely got into debt because your expenses exceed your income. If this is still the case, you’ll need to find ways to lower your bills or earn more money. If bankruptcy wiped out all or most of your debts, it may afford you wiggle room to get caught up and start building an emergency fund. Creating a budget can help you identify bills to cut and how much you can afford to save each month.
2. Pay your bills on time
Once you’ve had your debt restructured or discharged through bankruptcy, paying your bills on time can help repair your credit and avoid falling back into a cycle of debt. Payment history makes up 35% of your FICO credit scores and around 40% of your VantageScore credit scores, and late payments can stay on your credit reports for up to seven years.
3. Get a secured credit card
A secured credit card can help rebuild your credit after bankruptcy, as long as you manage the card responsibly by keeping your credit utilization low and making on-time payments. Secured credit cards function just like regular credit cards, except they require a security deposit. Some secured cards don’t require a credit check, so you may be able to get approved with a low score.
Alternatively, if you have few payments (or none), you could ask that a responsible friend or family member add you as an authorized user on their credit card, which allows their payment activity to go towards your credit report. You could offer to let them keep the card so you can’t use it, but so you still receive the influence of the credit activity on your score.
4. Consider a credit builder loan
With a credit builder loan, you make monthly payments to a lender that are reported to the credit bureaus. Paying your loan on time typically reflects positively on your credit reports and builds your score over time.
A credit builder loan differs from a traditional personal loan because you don’t receive money upfront. Instead, you make small payments over time — typically six to 24 months, and don’t have access to the funds until you complete all the payments. Only consider a credit builder loan if you know you can afford the payments because paying late will harm your credit score.
5. Track your credit score
Regularly review your score and your credit report to make sure there aren’t any errors that could be adding to your assumed debt. If something is fishy, ask for a debt verification letter. Disputing a mistake with the credit bureaus can get it removed from your report, which will give your score a boost.
Alternatives to bankruptcy
As bankruptcy is a last resort, you’ve got several options before you reach that point.
- Debt repayment strategies. Two debt repayment strategies are the avalanche and the snowball methods. In the avalanche strategy, you focus all your efforts on paying off the debt that has the highest interest rate; then the second highest interest rate, etc. In the snowball method, you focus on paying off the smallest debt, then the second smallest, and build up from there.
- Debt counseling. You don’t have to face down the monster of debt alone. The National Foundation for Credit Counseling (NFCC) is a nonprofit organization that can connect you to a professional who can help you find the right tools and make a plan.
- Debt management plans. A debt counselor may recommend a debt management plan (DMP), in which you make one affordable monthly payment to your creditors. A DMP can last three-to-five years but has some limitations (creditors must agree to participate) and some requirements (you must close all of your credit cards).
- Debt consolidation. Rather than getting your creditors to agree to a DMP, you could pay most (or all) of them off with a debt consolidation loan. The idea is that you get a new loan with the lowest possible interest rate and use the cash from it to pay off all of your other debts, combining all of them into one more manageable payment. A balance transfer credit card might be one way to accomplish this.
- Debt settlement. In debt settlement, you typically hire a negotiation company to work with your creditors to reduce your debt.
- Contact your creditors yourself. You can reach out to your creditors and try to negotiate a payment plan or more affordable terms. Most creditors would rather try to proactively work with you and end up with something than to have you default on your loan entirely.
Frequently asked questions (FAQs)
Unless the credit bureaus reported the bankruptcy inaccurately, you must wait 10 years for Chapter 7 to be removed from your credit report. Thankfully, the negative impacts on your credit fade over time. If you hit the 10-year mark and still see the bankruptcy on your report, contact the credit bureaus to have them remove it.
Your credit score may not immediately go up once a bankruptcy filing is removed from your credit report, as it depends on how well you’re managing your debt currently. If you want to boost your chances of a credit increase, focus on paying your bills on time and keeping your credit balances low.
This will depend on your current credit scores and how many negative marks you have on your credit reports. According to FICO, someone with a credit score in the mid-700s can expect a drop of 100 points or more. If you had a high score before bankruptcy, you might experience a more drastic drop. On the other hand, bankruptcy may not affect your credit as much if you already have low scores.
Regardless, filing for bankruptcy will likely leave you with a poor credit score, at least in the short term.
It’s almost impossible to remove a bankruptcy from your credit reports. You must wait 10 years for chapter 7 or seven years for chapter 13 to fall off your credit. In the rare event that a bankruptcy was filed under your name by mistake, you can dispute it with the credit bureaus (Experian, TransUnion and Equifax) to try and get it removed from your credit reports.
To successfully dispute a bankruptcy, you’ll need to prove that the bankruptcy is on your report by mistake or contains inaccurate information.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
