If you get too deeply in debt or face unforeseen circumstances that keep you from paying your bills, bankruptcy may seem like the only option. No matter which type of bankruptcy you file, it will have an effect on your credit score and remain on your report for many years. It's important to know just how long the bankruptcy will show up, how you can make sure that it has been removed after the appropriate period and what to do if it does not get removed automatically.
Chapter 7 Bankruptcy
Bankruptcy is a process through which a consumer who is financially overwhelmed asks for relief from the courts. In a Chapter 7 bankruptcy, if the consumer has any assets, they are liquidated and distributed to his creditors. Then his debts are discharged. If there are no assets, the creditors will not receive anything. However, if he has significant assets he wishes to protect, MSN Money financial columnist Liz Pulliam Weston suggests that a Chapter 7 bankruptcy may not be the right option.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, the consumer agrees to a manageable repayment plan that typically spans three to five years. It is considered to be a debt reorganization because it involves repayment rather than simply wiping out debts. This type of bankruptcy may allow the consumer to protect some of her assets and will typically appear on her credit report for a shorter period than a Chapter 7 filing.
Chapter 7 Reporting
A dismissed Chapter 7 bankruptcy will stay on the consumer's credit report for 10 years. After that, it should be removed automatically. According to MSN Money's Weston, even though the bankruptcy will show up for a decade, its effect on the consumer's credit score will diminish over time since recent information carries more weight.
Chapter 13 Reporting
A Chapter 13 bankruptcy can also remain on a consumer's credit report for 10 years. However, it is typically removed after seven. This can be negotiated as part of the settlement. Quicker removal makes it more attractive than a Chapter 7 bankruptcy, thus encouraging the consumer to create and follow a repayment plan rather than having the debts discharged. Like a Chapter 7 bankruptcy, a Chapter 13's effect on a consumer's credit diminishes over time.
Warning
Consumers who file bankruptcy should monitor their credit reports closely. Transunion, Experian and Equifax are all required to provide one free credit report each year upon request. A person who has gone through bankruptcy should make sure that discharged debts do not show up improperly. He should almost make sure that it is removed after the designated period. If any incorrect information shows up, he should file a dispute with the credit reporting agency.
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