Learn how Chapter 7 and Chapter 13 Bankruptcy Affect Your Credit Report

Picture of Erik Kaplan

Erik Kaplan

CEO, THD Credit Consulting
[email protected]
(800) 822-7120

Bankruptcy can give individuals or businesses a fresh start by discharging certain debts or providing a structured repayment plan. However, filing for bankruptcy can also significantly impact your credit report and score.

Let’s discuss the differences between Chapter 7 and Chapter 13 bankruptcy and how they can impact your credit report.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often referred to as a “liquidation” bankruptcy because it involves selling off assets to pay creditors. This type of bankruptcy is typically best suited for individuals with little or no assets and a significant amount of unsecured debt, such as credit card debt or medical bills. The remaining debts are then discharged, meaning that the debtor is no longer responsible for them. This process typically takes about four months to complete.

What you need to know

  •  Not all debts can be discharged through Chapter 7 bankruptcy, such as student loans, taxes, and certain court-ordered payments.
  •  Chapter 7 bankruptcy will have a significant impact on your credit score, as it is considered one of the most negative items that can appear on a credit report.
  •  The number of points your credit score will decrease will depend on a variety of factors, such as your credit history, the amount of debt discharged, and how long ago the bankruptcy was filed.
  •  A Chapter 7 bankruptcy will stay on your credit report for up to 10 years from the date of filing and will impact your ability to obtain credit, as lenders may view you as a high-risk borrower.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows individuals to restructure their debts and create a repayment plan over a period of three to five years. Unlike Chapter 7 bankruptcy, the debtor is allowed to keep their assets, but they must make monthly payments to a trustee who then distributes the funds to creditors.

What you need to know: 

  •  A chapter 13 bankruptcy will stay on a credit report for up to 10 years from the date of filing. However, because the debtor is making payments it is viewed as more favorable by lenders than a Chapter 7 bankruptcy.
  •  If payments are made on time a Chapter 13 bankruptcy should not have as severe an impact on the credit score.
  •  The debtor must complete the repayment plan before the bankruptcy is discharged, which can take up to five years. During this time, it may be more difficult to obtain credit or loans.

Filing for bankruptcy can significantly impact your credit report and score. If you are considering bankruptcy, it’s important to weigh the pros and cons so you understand your options. If you have questions schedule a free consultation or call me at 1-800-822-7120.


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