People are often grateful for the relief provided by the automatic stay that the court grants when they file for bankruptcy. After all, they have probably endured aggressive collection efforts for months at the point that they file for bankruptcy and may feel anxious every time they answer the phone or go to the mailbox, to describe their situation mildly.
However, the primary purpose of an individual’s bankruptcy process is usually the discharge of someone’s eligible unsecured debts. An individual will no longer need to pay the remaining balance on their eligible credit cards, medical debts and similar unsecured financial responsibilities after the court grants their discharge. The only real downside to a discharge is that it will create a very significant blemish on someone’s credit report that could limit their opportunities for years to come.
Bankruptcy records can remain for up to 10 years
A bankruptcy discharge is a more significant financial matter than a missed payment on an account, so there are exceptions to credit reporting laws that apply to some bankruptcy filings. If an individual obtains a Chapter 7 bankruptcy discharge, their credit report will typically show that for a full decade after the discharge.
However, when an individual files for a Chapter 13 bankruptcy, they will have to spend several years making structured payments before the courts will discharge their debts. Since the minimum amount of time for that repayment plan is three years, the credit reporting requirements for a Chapter 13 bankruptcy last for three years less than a Chapter 7 bankruptcy’s records would. A Chapter 13 discharge will come off of someone’s credit report after seven years, just like most other blemishes.
Thankfully, people generally don’t need to wait until the removal of the record of their discharge from their credit report to secure new lines of credit and start rebuilding their lives. Many people can obtain credit cards within a few months of discharge and larger lines of credit within a few years as their credit scores improve slowly but surely (provided that they make solid financial choices moving forward). Understanding the impacts that bankruptcy will have on someone’s finances may make it easier for them to plan for a more stable financial future after they file.
