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How Long Does Bankruptcy Appear on a Credit Report?

EH Law Group March 30, 2023

Bankruptcy, of course, is a frightening concept to most people. It seems like an admission of failure or even a scar on your personal integrity, but it can have many benefits. Most bankruptcies result from unexpected events, such as an illness or disability that requires medical expenses that you cannot fully meet.   

In short, bankruptcy is not necessarily a negative event or a stigma. The law is designed to give filers a fresh start in life, clear of debts that had become overwhelming.   

If you’re contemplating or already entering into bankruptcy protection, your credit has probably already taken a pretty big hit from late, partial, and/or missed payments. Filing for bankruptcy will place a notation on your credit report, but it will also mark the start of a fresh beginning.  

The question is: How long does the bankruptcy filing affect one’s credit score? Your credit score, of course, determines your ability to make purchases in life that require long-term commitments, such as buying a car or a home, even home furnishings and appliances.   

The answer depends on which type of bankruptcy you file, Chapter 13 or Chapter 7. In either case, the mark on your credit score will last for years, but that doesn’t mean you can’t recover good credit long before the notation is removed.  

For all your questions and concerns about bankruptcy in or around San Mateo, California, contact the EH Law Group. We have a combination of more than 30 years of experience in helping individuals and families navigate the bankruptcy system to obtain a fresh start in life. We stand ready to help you.   

We have offices in both San Mateo and San Francisco, and we help clients in surrounding areas, including South San Francisco, Daly City, Oakland, and Santa Clara County. 

Chapter 7 Bankruptcy 

The federal bankruptcy code divides into chapters, and Chapter 7 is known as the liquidation option. Now, that sounds pretty scary, as if they’re going to come and take everything you have and sell it to pay off creditors. That’s far from the truth in California. The Golden State protects specific possessions and assets from liquidation, partially or fully. For instance, you can be spared up to $600,000 in home equity depending on the home values in your neighborhood.  

Also, under federal bankruptcy law, some of your income sources are protected, such as Social Security, workers’ compensation, Veterans’ benefits, and disability payments. In other words, these sources can’t be attached to pay for debts owed, and they don’t usually count toward the income means test for filing for Chapter 7. The income threshold for Chapter 7 – how much you can earn before you don’t qualify – changes often but currently stands at $69,660 a year for a single filer and $113,615 for a family of four.  

When you file for Chapter 7 or Chapter 13 (described next), you will be given an automatic stay, which prevents creditors and bill collectors from contacting you or attempting to seize your assets through court actions. At the same time, however, your bankruptcy filing will appear on your credit report for ten years under a Chapter 7 petition. As we will explain, that does not necessarily mean you cannot obtain credit and improve your score soon after filing. 

Chapter 13 Bankruptcy 

Chapter 13 is known as the wage-earners plan. Under this option, you calculate your disposable income – what’s left after meeting the essential costs of life – and come up with a repayment plan to cover your debts, at least partially. Then you make a monthly payment for three to five years to honor your obligations as best you can.  

Of course, if you have secured debts for cars or homes, they will have to be honored as originally agreed upon unless you can get a refinancing agreement. The good news is that if you’re behind in your mortgage or car payments, you can include the arrears amount in your reorganization plan, but you will also have to continue to honor the original monthly payment plan if not modified.  

A Chapter 13 filing will stay on your credit report for seven years, but again, that doesn’t mean you can’t begin rebuilding your credit and start fresh long before that period of time. 

Rebuilding Your Credit 

Chapter 7 bankruptcy ends within a few months, then you will be discharged from your unsecured obligations. Secured obligations such as home and car loans must be honored if you wish to retain those possessions.   

Once you are discharged, and sometimes even before, you will be offered credit cards and auto loans from institutions that know you cannot file bankruptcy again anytime soon, but you have to check out the terms. Often, the interest rate can be high, and there may be other fees or conditions.  

You can also seek out a secured line of credit, by which a credit union or bank loans you a small sum, perhaps $1,000, and you make monthly payments while the loan stays in an untouchable account. When you’ve made all the payments, the money is yours, but the main point is if you adhere to the payment schedule, you can improve your credit score to obtain further credit opportunities.  

A Chapter 13 bankruptcy is a little different in that you must make payments for three to five years before being granted a discharge. Also, if you seek credit during the repayment period, you will usually have to obtain permission from the court. Nonetheless, you may still receive offers in the mail, but if all your disposable income is going toward the repayment plan, a new credit arrangement can be difficult. That’s one reason most people opt for Chapter 7 if they can. 

Rely on Dependable Legal Guidance 

If you live in or near San Mateo or San Francisco, California, reach out to us at the EH Law Group for trusted bankruptcy counsel. We can assess your situation and advise you of the best path going forward. In addition, we stand ready to help you rebuild your credit as you move toward a fresh start in life.