Bankruptcies

With the recent events in the US Economy, bankruptcies have increased in frequency and have started impacting the lives of millions of Americans. A bankruptcy is the most damaging event that can happen to someone's credit report and rating, and that occurs in a number of ways.

The Bankruptcy Legal Record

Legal Records on your credit report (also known as Public Records) include tax liens, court judgments, and bankruptcies. If you file for bankruptcy, that record will remain on your credit report for seven years or longer depending on the type of bankruptcy filed.

Issue	Stays On Report	Description
Chapter 13 Bankruptcy	Seven Years from the Filing Date	Under Chapter 13 bankruptcy, a person repays at least a portion of their debts. Chapter 13 bankruptcy will remain in the credit report for seven years from the filing date.
Chapter 7 Bankruptcy	Ten Years from the Filing Date	Under Chapter 7 bankruptcy, a person does not repay any of the debts included in the filing. Chapter 7 bankruptcy remains on the credit report for 10 years from the filing date.
Disclaimer: This table is an approximation and a simplification of a very complex formula. Most of the time these dates will be accurate, but there are always loopholes or special cases where information stays on reports longer or shorter than listed here.

The Impact on Your Accounts

In the case of a bankruptcy, the biggest hit to your credit rating does not come from the Legal Record, but instead comes from the impact on your accounts. For example:

- If you have less than two open credit cards, you miss out on bonus points to your credit score.

- The score calculation includes a penalty for having a high percentage of scores with serious delinquencies.

- You may lose a bump to your credit score for having an open mortgage account in good standing.

- Extra points for having a high average balance on open credit cards may be lost.

Recovering from a Bankruptcy

Credit reports and scores were designed to assist lenders in deciding who was more or less likely to fulfill their financial obligations. When someone files for bankruptcy, it's extremely damaging to their credit score as it's a failure to meet all (or almost all) of their financial obligations. While through discipline and hard work, it is possible to quickly bounce back from the financial implications of a bankruptcy, the credit implications will last for at least seven years. During that time period, it is unlikely that a person will be approved for new loans or credit accounts, and if they are the terms are likely to include high fees and interest rates.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.