How long does bankruptcy stay on your credit reports?

Bankruptcies and credit reporting are complex enough on their own. And even basic questions about how long a bankruptcy filing will stay on a credit report are subject to a lot of different variables. But here’s a closer look at two of the most common bankruptcy filings, plus information about how bankruptcy could impact credit scores.

What you’ll learn:

• According to historical statistics from the U.S. Courts, Chapter 7 and Chapter 13 are the two most common bankruptcy filings. 

• The Consumer Financial Protection Bureau (CFPB) says Chapter 7 and Chapter 13 bankruptcies can stay on credit reports for up to 10 years, sometimes longer.

• According to credit-scorer FICO®, “as long as the bankruptcy is listed on your credit report, it will likely be factored into your score.” But the impact can diminish over time.

This type of bankruptcy is also known as a liquidation bankruptcy because it involves the debtor selling property to pay back creditors. But not all property, or assets, must be sold as part of Chapter 7. 

• Exempt assets can include essentials such as a primary residence, tools for work and Social Security benefits. 

• Nonexempt possessions that must be sold can vary by state (and there may be federal rules that apply too). They might include vehicles, jewelry or bank funds. Each state dictates which assets are exempt and nonexempt. There are also federal exemptions.

A Chapter 13 bankruptcy is sometimes called a reorganization bankruptcy or wage-earner’s plan because filers can restructure debts and establish a court-supervised repayment plan. According to information from the U.S. Courts about bankruptcy basics, that repayment plan is a particular advantage because it provides an opportunity to avoid home foreclosure.

There are a lot of variables when it comes to bankruptcies and how they’re reported on credit reports. But the CFPB says, “If you filed for bankruptcy protection, that information will remain in your credit report up to 10 years from the date of entry of the order or the date of adjudication,” adding that “in certain instances, bankruptcy can be reported beyond 10 years.”

Bankruptcy can hurt credit scores. According to FICO, the effect of bankruptcy on your credit scores depends on the type of bankruptcy, your current scores, the number of accounts included in the filing and more. In some cases, the impact of bankruptcy can diminish over time.

When you apply for new credit, creditors and other organizations may review your credit reports and consider the bankruptcy filing. So you may have a hard time qualifying for new credit accounts with favorable terms. 

Bankruptcy can also affect efforts like renting an apartment, opening new utility accounts, finding a job or qualifying for lower insurance premiums.

If the bankruptcy filing is accurate, credit bureau Experian says you typically can’t remove it. But if you think a bankruptcy has been reported in error, you could file a dispute with the credit bureaus.

You don’t have to wait for a bankruptcy to fall off your credit report to start rebuilding credit. Here are some ways you could approach it:

• Practice good credit habits. Using credit responsibly can help you improve your credit scores. That means making on-time payments, staying under your credit limit and avoiding too many new credit applications. Your credit scores may not be where you want them, but you may still have ways to access credit with a secured credit card or by becoming an authorized user. 

• Monitor your credit reports and scores. Regularly checking your credit reports and scores can help you track your progress and spot any errors. You can get free credit reports from each major credit bureau by visiting AnnualCreditReport.com. There’s also CreditWise from Capital One. It’s free, and using it won’t hurt your scores. 

• Get a credit-builder loan. When you apply for a credit-builder loan, the funds are set aside in a locked savings account, and you make monthly payments. Your payment history is typically reported to the bureaus, which can help your credit if your payments are on time. The lender turns over the balance when you pay off the loan, and you can use the funds however you want.

According to the CFPB, bankruptcies typically stay on credit reports for up to 10 years. But with patience and good credit habits, it’s possible to rebuild your credit after a bankruptcy. And a Capital One credit card could be a tool you use to help you reach your goals.