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How long will Chapter 13 bankruptcy impact your credit score?

People considering bankruptcy as a means of dealing with their debt often have a number of concerns that hold them back. Some people worry mostly about the long-term impact of bankruptcy on their credit scores. After all, bankruptcy is a significant negative mark that will impact your ability to secure credit for some time in the future.

However, bankruptcy is not a permanent problem when it comes to individual credit. Instead, there are limits on how long the records of your Chapter 13 bankruptcy can continue to impact your credit score. Myths about bankruptcy and credit persist that may deter some people from seeking the bankruptcy relief they so desperately need.

Chapter 13 bankruptcy comes off your credit report faster than Chapter 7

In general, most negative marks on your credit report can only stay there for seven years. Chapter 7 bankruptcy is an exception to this rule. Individuals who obtain a discharge through Chapter 7 proceedings will have the record of that bankruptcy reported to the credit bureaus for 10 years after their date of discharge.

The reporting period is actually shorter for Chapter 13 bankruptcy, although the process itself may take longer. You will receive a discharge once you complete your repayment plan, which typically lasts from three to five years. After the courts discharge your unsecured debts, the bankruptcy will then show up on your credit report.

It will stay on your credit report for seven years after discharge. That means that, technically, the impact will be roughly the same amount of time as with Chapter 7. Overall, however, Chapter 13 will likely have less of an impact on your future credit.

You can start rebuilding credit before the bankruptcy comes off your report

Another pervasive bankruptcy myth is that you simply can't have credit after bankruptcy. While many lenders are reticent to work with people with a recent bankruptcy, credit cards usually are more than happy to extend secured lines shortly after bankruptcy.

In fact, you can likely begin rebuilding credit within weeks of your Chapter 13 discharge. Making payments on time will make it easier for you to secure other lines of credit. Over the years immediately after your bankruptcy, you should make a practice of paying your credit card bills in full every month.

So long as you keep up with your payments and don't overextend yourself, you will see a rapid increase in your credit score over the course of several years. Many people find that they can qualify for a mortgage within three years of their Chapter 13 bankruptcy discharge. You will qualify for even better rates if you wait longer or until it comes off your credit report.

If fear about the impact to your credit score and financial future are what have been keeping you from considering bankruptcy, now that you know better, you can make a more informed decision.

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