Because a bankruptcy is a public record, by law it must appear on your credit report. The length of time your bankruptcy remains on your report is based primarily on the type of bankruptcy filed, rather than any subjective decision by the credit reporting agencies. The effect that your bankruptcy has on your overall credit may vary depending on the creditor reviewing your report and the length of time since you filed.
Chapter 7 Bankruptcy
Of all chapters of bankruptcy, Chapter 7 stays on your credit report the longest. The reason is that Chapter 7 is a "total" bankruptcy, in which the court allows you to walk away from your debts. The Chapter 7 bankruptcy process lasts only three to six months on average, and you do not have to pay your creditors back any of your debt if you satisfy all requirements. As a result, Chapter 7 has the greatest negative effect on your credit scores, according to credit reporting agency Experian, and it stays on your credit report for 10 years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy isn't as damaging to your credit rating as Chapter 7, mainly because of the structure of Chapter 13. Chapter 13 bankruptcy requires the development of a repayment plan to pay off as many debts as possible over a three-year or five-year period. Instead of not paying back any debts, as in Chapter 7, the court may require you to pay back all your debts in Chapter 13. The determination is based on the amount of your monthly disposable income. If you can afford to make payment in full, you must. Whether you pay back all or just some of your debt, the credit reporting agencies will show your Chapter 13 filing on your credit report for seven years, three years less than a Chapter 7 bankruptcy.
Other Derogatory Marks
Banrkuptcy typically damages your credit score more than any other single item on a credit report. Its duration adds to its negative effect. Generally, delinquent accounts fall off your credit report before your bankruptcy, because late payments and other derogatory marks appear on a credit report for no more than seven years. Because most debtors make late payments before they file bankruptcy, even if you file Chapter 13 bankruptcy, these accounts generally fall off your report first. By the time your credit report no longer reflects your bankruptcy, it will be free from other types of derogatory information -- unless subsequent financial activity resulted in new negative information on your credit report.
Effects
The effect of a bankruptcy on your credit report can vary. If you need credit in the immediate aftermath of filing bankruptcy, you are unlikely to obtain it, because you represent a financial risk for lenders. As time goes by, the effect of your bankruptcy generally decreases, particularly if you show a stable credit history after your bankruptcy discharge. However, some lenders will be reluctant to extend you credit during the entire seven-year or 10-year period that your bankruptcy appears on your credit report.
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