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Contrary to the pervasive myth that bankruptcy will destroy your credit, bankruptcy can actually provide the much-needed financial relief that, in the long term, allows the filer to begin building good credit once again.  However, while a Chapter 7 or “liquidation” bankruptcy can empower you to strengthen your credit in the future, it will have some immediate effects upon your credit score for which you need to be prepared.  Our Folsom Chapter 7 bankruptcy lawyers will explain how long a Chapter 7 bankruptcy stays on your credit report, and discuss the possible effects on your ability to obtain loans.  You may be pleasantly surprised by some of the information.

How Many Years Does a Chapter 7 Bankruptcy Stay on Your Credit Report?

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First, it’s important to distinguish between a bankruptcy case that is discharged and a bankruptcy case that is dismissed.  A discharge, which frees the debtor from his or her liability for dischargeable debts, is the goal in any bankruptcy case.  But, a case can also be dismissed, which means there was a problem with the case and the filer will not be relieved of his or her debt obligations.  A bankruptcy case can be dismissed for numerous reasons, including but not limited to fraud, noncompliance with requirements of the legal process, or failure to meet certain financial criteria.

It’s important to understand that a bankruptcy case will appear on your credit report even if your case is ultimately dismissed.  If this is the case, the dismissal should be noted on the report, regardless of whether or not it was dismissed “with prejudice,” meaning the case cannot be refiled.

The length of time a bankruptcy stays on your credit report is not determined by whether the case was dismissed or discharged; rather, it is determined by the type or “chapter” of bankruptcy under which you file.  Chapter 7 bankruptcies, though not appropriate for every situation, are favored by many people due to their speed and simplicity, concluding in as little as four to six months. This chapter of bankruptcy will be reported to each of the three major credit bureaus – Equifax, Experian, and TransUnion – for a period of 10 years or more.

Many people panic when they hear this figure because they assume it means they will be unable to obtain any loans for a decade.  This is yet another harmful myth about bankruptcy that fails to take into account the true nuance of the matter.  In order to understand why, we have to rewind.

If you are considering filing for Chapter 7 bankruptcy, your credit is likely already in less-than-optimal condition.  When you file for Chapter 7 bankruptcy and your case is successfully discharged, it means that your debts will be discharged, or eliminated.  Once you are released from these burdensome financial liabilities, you will be much better able – perhaps more than you have been in many years – to effectively manage new debt if a lender issues you a loan.

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At this point, you may be worrying to yourself, “But I’ll never be able to get a loan when the lender sees my bankruptcy.”   Once again, this is not necessarily true.  Though it seems counter-intuitive and may come as a surprise, many lenders are fairly willing to work with a person who has recently come out of a Chapter 7 bankruptcy for two significant reasons:

  1. They know you have been released from most of your debts (though there are certain debts which are not typically dischargeable in Chapter 7 cases, including student loans, criminal restitution, and loans pertaining to alimony and child support).
  2. They know that you will not be able to obtain another Chapter 7 bankruptcy discharge for a period of at least eight years.

In short, bankruptcy will remain on your record for up to a decade; but, that doesn’t mean it has to negatively affect your life for all or even much of that time.  On the contrary, filing for bankruptcy can be an ideal strategy for tackling bad credit head-on.  You could think of it a bit like the extraction of a rotten tooth: though it may cause some discomfort at first, it will help you to become much healthier in the long run.

California Chapter 7 Bankruptcy Lawyers Serving Sacramento, Folsom, and Roseville

If you need help filing for Chapter 7 bankruptcy in Folsom, Sacramento, or Roseville, or even if you are simply wondering about whether bankruptcy might be right for you, we encourage you to contact the California Chapter 7 bankruptcy attorneys of The Bankruptcy Group for a free, friendly, and completely confidential legal consultation.  We can help to assess your financial situation, including your long-term goals for the future, in order to determine whether bankruptcy is a possible option for getting your debt under control.  Please do not hesitate to call our law offices at (800) 920-5351 to talk about Chapter 7 bankruptcy today.