How long does bankruptcy stay on your credit report?
Image via Roman Bozhko on Unsplash
If you’re struggling with debt, bankruptcy is one of the solutions available to you, among others. Depending on the type of debt you have and the type of bankruptcy you choose, you can have a fresh financial start in just a few months. There many benefits offered by opting for North Carolina bankruptcy to deal with unmanageable debt, but there are also costs to these benefits. One of them is that your bankruptcy filing will be noted on your credit report and it will stay there for years to come. However, it doesn’t mean that it will negatively impact your finances. Take a look at how long bankruptcy stays on your credit report and how this may impact you.
Credit Score and Bankruptcy – Debt Drags It Down
One of the concerns consumers have about filing bankruptcy is the impact it will have on their credit. It’s true that filing bankruptcy does drop your credit score temporarily, but if you are struggling with debt, your score is likely dropping every month already. Late payments, maxed out cards, and increases in credit utilization will all drop your score. Every month your debt crisis continues means a perpetually lower score. Filing bankruptcy can stop this credit score free fall.
Most Negative Items Remain on Your Credit Report for Years
Another concern is how long bankruptcy will stay on your credit report. Negative items stay on your credit report for up to seven years. Bankruptcy is considered a negative item. A Chapter 13 case filing, whether you complete the process through to discharge or not, stays on your report for seven years. However, a Chapter 7 bankruptcy stays on your credit report for up to a decade. The flip side to that is that Chapter 7 offers sweeping and rapid debt relief so that you can get back on track faster.
The Longer After Filing, the Lesser the Impact
While it might seem unfair for a bankruptcy filing to stay on your credit report for that long, there’s another factor to consider. The longer after the event occurs, the lesser the impact on your credit score. For instance, foreclosure is a negative occurrence that drops your credit score initially. However, the more time that passes, the less of an impact it has. The same goes for bankruptcy. After a year, the impact is much less, and it continues to diminish as time passes.
Studies Show Bankruptcy Improves Credit Scores
In fact, your credit score can benefit from filing bankruptcy if you’re in over your head with debt. For North Carolina consumers struggling financially, a lower credit score can be a reality ever month that the crisis continues. When you miss a payment, your score lowers. When you max out a credit card, your score can drop. When you have a total credit utilization of 25-30% or greater, your FICO score drops. When accounts go into collections, your score lessens. If there’s a judgment against you, it drops more.
However, when you file bankruptcy, the downward momentum stops. The Federal Reserve found that consumers struggling with debt that choose bankruptcy have higher credit scores in a year than those that choose to continue without this legal intervention. Bankruptcy is a good thing. It’s a solution. Don’t look at bankruptcy as an end but as a new beginning to a life with less debt and stress.
To find out more about the benefits of bankruptcy and how to get a fresh financial start, contact the Law Offices of John T. Orcutt. Call now to schedule a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. And be sure to read reviews from satisfied clients to know what to expect during your bankruptcy case.