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What happens to your credit after your bankruptcy discharge?

On Behalf of | Oct 21, 2022 | Bankruptcy

People are often so anxious about the financial and credit impact of a bankruptcy filing that they struggle needlessly for months or even years with debt they can never fully repay. There is a myth about bankruptcy that exaggerates the impact of filing.

Some people have heard stories from people who claim to know someone who never recovered from bankruptcy. There are people who claim bankruptcy forever destroyed their credit, while others blame their bankruptcy for their current debt despite bankruptcy creating an opportunity for someone to reduce their debt.

When you understand how quickly you can start rebuilding your credit, you may better appreciate the benefits of modern bankruptcy.

Within a few months

Your revolving lines of credit will close right away when you file for bankruptcy, and you will have to apply for new credit cards or personal loans when you need financial flexibility. Thankfully, credit card lenders are eager to offer lines of credit for those who won’t qualify again for bankruptcy for many years.

You will likely start receiving offers through cured lines of credit and credit cards with high interest rates within a few months of your discharge. Once you have a credit card, you can begin making monthly payments and rebuilding a positive credit history.

Within a few years

Depending on how quickly you develop a positive credit history after your discharge, you may qualify for larger lines of credit, like vehicle loans or even mortgages, within two or three years of your discharge.

While the terms for these loans may not be ideal, diversifying the kinds of credit you have may be better than waiting multiple years to qualify for better financing options.

Within five or seven years

If you filed for Chapter 7 bankruptcy, the record of your discharge will come off of your credit report 10 years after the courts grant it. If you secure a Chapter 13 bankruptcy discharge, it will only show up on your credit report for seven years. Once the official credit record of your bankruptcy comes off of your credit report, there will no longer be any bankruptcy-related limitations to your credit opportunities.

Understanding how the impact of bankruptcy on your credit changes over time will help you more quickly and completely rebuild your credit instead of delaying your filing because you believe common bankruptcy myths.