Bankruptcy can occur to anyone, even large entities. Illinois has faced issues in recent weeks concerning the town of Harvey, which may need to file for bankruptcy due to having an annual operating revenue that is three times less the city’s pension debt.
After filing for bankruptcy, it may take you years to rebuilt your credit history. Whether you file for Chapter 7 or Chapter 13 bankruptcy, you need to be ready for the effect on your credit score.
How long bankruptcy stays on your credit score
After you complete your Chapter 7 bankruptcy, it will remain on your credit history for 10 years. A benefit of Chapter 7 is that the process discharges most of your debts, and those debts will go off your record in about seven years. For Chapter 13 bankruptcies, both the bankruptcy itself and the discharged debts will remain on your record for seven years. However, Chapter 13 does not necessarily discharge all debts. You will need to create a payment plan, which typically lasts between three and five years. That means these debts could potentially stay on your report for longer than seven years.
Bankruptcy’s impact on home ownership
Immediately after filing for bankruptcy, you will have a difficult time buying a house, and you should not expect to receive approval for a mortgage any time soon. That does not mean you will never again be able to purchase a home. You will simply need to wait and rebuild your credit in the interim.
While it can take seven to 10 years for the bankruptcy to go off your credit report, you will not necessarily have to wait that long to buy a home. While it will be a blemish, you can take action to improve your credit score in the short term, such as paying off all of your bills on time. Your credit score may not increase a lot, but every small action helps.