Home > Credit Score > 7 Myths About Bankruptcy and Your Credit Debunked

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UPDATE: Article Updated by Brian Acton 3/7/18

Filing for bankruptcy is devastating to your credit and can cause your credit score to plummet more than 200 points. But for people in dire straits, bankruptcy is a last resort that can help them liquidate assets, discard or pay off debts, and get some financial relief.

If you’re considering bankruptcy, you need to understand how it will affect your credit. This involves clearing up some common misconceptions about how bankruptcy affects your credit.

Myth #1: If you don’t have negative information on your credit report prior to bankruptcy, you will have a higher post-bankruptcy credit score than if your report contained negative information prior to filing.

The Truth: Positive payment history and a lack of negative information does very little to minimize the impact of a bankruptcy on your credit score. The presence of a bankruptcy, and the length of time the bankruptcy has been on your report, are the strongest determining factors.

Myth #2: All bankruptcy information stays on your credit report for ten years, without exception.

The Truth: Only the public record of a Chapter 7 bankruptcy lasts for ten years. All other bankruptcy references remain on your credit report for seven years, including:

  • Trade lines that state “account included in bankruptcy”
  • Third-party collection debts, judgments and tax liens discharged through bankruptcy
  • Chapter 13 public record items

Once the above items start disappearing, you may see a bigger boost in your credit score.


Myth #3: You will have poor credit as long as the bankruptcy information stays on your credit report.

The Truth: While you should expect a dramatically lower credit score following bankruptcy, you can begin to build your credit back up with smart credit management. After four or five years, you may even be able to crack the good credit score range (700-749). Following bankruptcy, you can immediately begin to build your credit back up by:

  • Adding new credit, such as secured credit cards or small installment loans, to offset the negative information on your credit report
  • Making on-time payments for all debt, new and old
  • Keeping your credit card balances under 30% utilization

[Related Article: Filing Bankruptcy: What You Need to Know About Chapter 7 vs. Chapter 11 vs. Chapter 13]

Myth #4: Bankruptcy affects the credit of all consumers equally, regardless of the amount of debt or the number of debts included.

The Truth: Your credit score will factor in details such as the amount of debt discharged and the proportion of negative to positive accounts on your credit report. If you have a relatively low amount of debt and only a few accounts included in your bankruptcy, your credit score will be higher than someone with a more severe bankruptcy.

Myth #5: All bankruptcy debts will be wiped clean from your credit report.

The Truth: While bankruptcy may help you erase or pay off past debts, those accounts will not disappear from your credit report. All bankruptcy-related accounts will remain on your credit report and affect your credit score for seven to ten years, although their impact will lessen over time.

Also, federal student loans often can’t be discharged in bankruptcy, so you may still be on the hook for those.

Myth #6: You can’t get a credit card or loan after bankruptcy.

The Truth: Credit cards are one of the best ways to build credit, and there are options out there for those with a checkered credit history. Secured credit cards, which require an upfront security deposit, have a lower barrier of entry but spend and build credit just like a traditional card.

Similarly, there are loans available – such as passbook, CD or credit builder loans – that are secured with a deposit or collateral and will help you build credit as you pay them off. Like secured credit cards, these loans are much easier to come by because the lender is protected in the event you can’t pay.

Myth # 7: Bankruptcy will ruin your credit forever.

The Truth: Bankruptcy will do severe damage to your credit in the short term, but it will only stay on your credit report for a maximum of ten years. After that, you’re free and clear. And if you continue to practice good financial habits and build credit in the meantime, you can rebuild your credit to be stronger than ever

So, before taking the big leap into bankruptcy, consult a bankruptcy attorney and learn the facts about how credit scores treat bankruptcy. You just may be able to minimize the damage and get a jump on re-establishing your credit after filing. If you want to know where your credit score stands following your bankruptcy, you can use a service like Credit.com’s Credit Report Card, which offers you a free credit score once a month.

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  • Jeanine Skowronski

    In terms of your credit report, bankruptcies may be reported for 10 years from the filing date, though discharged Chapter 13 bankruptcies are generally removed after 7 years. A bankruptcy is part of the public record, however, and it can show up on a background check. The good news is employers are prohibited from factoring a bankruptcy into their hiring decision.

    It gets a little tricky, because employers can factor a person’s credit in their hiring decisions and bankruptcy can hurt your credit. You’re out of the 10 year window, so that bankruptcy should not be affecting your credit anymore. It may be a good idea to check to see that it was removed properly from your credit report. You can learn how to do so here:


    Something else to keep in mind: In terms of disclosure, as a general rule of thumb, it’s best to be honest regarding any questions the employer may be asking on the background check form.



  • Jeanine Skowronski

    Filing for bankruptcy will effectively tank your credit, but whether or not this is the right move, depends entirely on your overall financial situation. You can learn more about how bankruptcy can effect your credit here: http://blog.credit.com/2016/04/worst-case-scenario-what-does-bankruptcy-actually-do-to-my-credit-score-141177/

    And you may want to consult a bankruptcy attorney about your best course of action.



  • bwall

    I will debunk #5. I’m in s chapter 13 as I type this. My scores went up by 60 points following the filing. Because all of my collection accounts, late payments to my mortgage because it was included. Even my student loans were removed from report till the chapter 13 is discharged and will reappear. My car loan is also gone. There is really nothing except for old accoubts that have been paid and closed left.

  • Mitchy_Chick

    I don’t know where you got this information from but I have had everything except for the actual bankruptcy removed from my credit report. I disputed the accounts with the credit reporting agencies based on the accounts having been included in my bankruptcy. All of the agencies removed those accounts from my credit report. In fact “Included in bankruptcy” is an auto populated option on the dispute form.

  • Jeanine Skowronski

    Hi, Aix,

    Your credit will actually improve steadily as you get further and further away from the bankruptcy — so long as you re-establish a good payment history, keep your debt levels low and limit inquiries while your score rebounds. You can find more info here:




    • Aix

      Hi Jeanine,
      Thanks for your response. Yes, I know gradually it will improve over time. My question however, was more specific. If at 7 years the accounts included in BK drop off (at 10 the public record drops off), is there a marked improvement after that 7-year point?

      • Jeanine Skowronski

        Your credit score should increase once the bankruptcy drops off completely, but it may not be a dramatic increase, depending on your credit profile and how much your score has already rebounded. In fact, a lot of times, credit scores improve right after bankruptcy since all of those accounts no longer count as debts you owe.



        • Aix

          Hi Jeanine thanks for your reply. My question is actually the opposite. To be precise, what happens when discharged accounts fall off your credit report at the 7 year mark? Not when the bankruptcy falls off at year 10. Does the score improve a little then?’ Thanks!

          • Jeanine Skowronski

            Your scores should improve as soon as the accounts are discharged — because you no longer owe those debts and they won’t hurt your credit utilization. Your score should also improve once the items disappear entirely at the second year mark, but that rebound may not be huge since scores steadily improve as you get further and further away from the bankruptcy. In other words, you’ve likely already recovered significantly (so long as no new negative information has been introduced) by the time the accounts fall off.



  • http://www.credit.com/ Credit.com Credit Experts

    So the mortgage is still open and active? And they’re not reporting it?

  • Bob Johnson

    I filed a chapter 7 bankruptcy 25 years ago. If I file another one this year will the trustee know it?

  • John Doe

    There is a lot of misinformation in this article. I was successfully able to get my score in the 700’s, and remove public record of a judgement from my credit report (was satisfied through the bankruptcy, you may need to provide discharge notice to county), within a year of a Chapter 7 being discharged (little over a year from when the case was filed). Also, there is currently a “Back to Work” Program available where you can potentially qualify for an FHA mortgage sooner than the typical waiting period.

  • Kaleedah Jordan

    I srated the precedings for bankruptcy, how ever I never completed it. I never made any payments for had any of my debits covered. How can I remove the bankruptcy from my account?

  • Dan

    I just received a NOTICE FOR FILING A FOREIGN JUDGMENT on a second mortgage for a house in Florida that was foreclosed. The judgment was closed and filed in Florida in Feb. 2010. I have moved to another state since then and have been working hard on rebuilding my credit. The judgment was for $70,000.00 and there is no way I could pay back, let alone make payments. I am considering bankruptcy now in order to avoid any wage garnishments. How would this bankruptcy effect my credit for this amount? How severe would the impact be on my credit? I just purchased a new vehicle and received two credit cards in the past six months to help rebuild my credit. I have my score up in the high 600’s now.

    • Jeanine Skowronski

      Hi, Dan,

      Bankruptcy has a significant effect on your credit and can take up to ten years to age off of your credit report, so it’s important to carefully consider all your options. You may want to consult a bankruptcy attorney.



  • Dale Orthner Attorney at Law

    Thank you for debunking the most talked about bankruptcy myths! This discussion is well overdue! If you are thinking of filing for bankruptcy, consult with a lawyer immediately. Ask all the questions, this will prepare you for a fast financial recovery.

    • Frank Mustari

      “typically causing a credit score loss of more than 200 points” would probably be one of the myths here that should be debunked. Certainly not my experience. My score went up over 130 points within a few weeks of filing, and was back over 700 within a 2 weeks of discharge. It depends probably on many factors, but ditching a ton of bad credit card debt that is already in arrears is not going to hurt your credit score. if you were somehow magically up to date on everything and filed for bankruptcy, then I’m sure you would lose 200 points, but since you are exploring bankruptcy that probably isn’t very likely.

      But anyway, depending on your income and overall situation recovery from bankruptcy can be very fast. e.g., you had high income but were massively overextended. If your financial situation isn’t really improving much after bankruptcy (i.e., you had low income, no assets, etc.) you shouldn’t be too surprised you won’t recover very quickly.

  • Joely Kremer

    My Chapter 7 will come off of my report in April 2016. Many people have told me that my credit score will decrease instead of increase when my this happens. Is this true and can you explain why it will not increase?

    • http://www.credit.com/ Credit.com Credit Experts

      This post may help you understand. The Bad Stuff Is Off My Credit Reports – So Why Didn’t My Scores Go Up?

      And positive information will help. If you are able to get credit cards, keep balances low and repay as agreed, you should see progress.

    • Lashunda Morales

      All depends on what you have on your credit. No credit is just as bad bad credit

  • Nick Notarnicola

    Your Fact #2 above is kind of confusing.

    Fact #2: Actually, only the public record of a Chapter 7
    bankruptcy lasts for 10 years. All other bankruptcy references on a credit
    report remain for 7 years, such as:

    Trade lines indicating “Account included in bankruptcy”

    Third-party collection debts, judgements and tax liens discharged through bankruptcy

    Chapter 13 public record items

    My question is: How long does the negative impact of a bankruptcy last on my credit report? Will my credit score go up after 7 years or 10 years? Will I get better interest
    rates after 7 or 10 years?

    • http://www.Credit.com/ Gerri Detweiler

      We just wrote an article that has a chart including maximum time to recover from various negative events: How Long Does It Really Take to Improve Your Credit?

      • Nick Notarnicola

        I read the article and I’m still confused. It repeats the 7-10 years range without really clarifying when it is 7 years and when it is 10 years. In addition, the chart at the bottom of the article shows Consumer A with a prior credit score of 680 recovering from bankruptcy in just 5 years but Consumer C with a prior credit score of 780 needing the infamous 7 to 10 years.

        • http://www.Credit.com/ Gerri Detweiler

          Did you file Chapter 7 or Chapter 13? Chapter 7 remains for 10 years and Chapter 13 is reported for 7 years. Since the Chapter 13 is no longer reported after seven years, the full recovery will be faster.

          I can understand how the charts can be confusing. They are describing maximum time to recover, and it shows that the better your scores before you filed the longer it takes to fully recover.

          • Nick Notarnicola

            Chapter 7. It would make your explanation easier to understand if you added that detail in the original article.

            Why would it take longer if you had a higher score before you filed? I would think that someone with a lower score would be more of a risk and would take longer to recover.

          • http://www.Credit.com/ Gerri Detweiler

            Thanks for the feedback on the article. We don’t want to confuse.

            As for the chart, it comes from FICO and it’s based on their data. I presume the reason it takes longer is that it’s harder to get back to a high score. (And faster to get back to a score that wasn’t as high to begin with.)

          • Frank Mustari

            Yeah this is quite misleading. The account information is going to stay on there independently of the bankruptcy type for 7.5 years. Remember that in Ch 7 your accounts evaporate on discharge whereas in Ch 13, you are working on them for 3-5 years. So your accounts info in Ch 7 go bye bye 7.5 years for sure (at the max – assuming you were on time — if you weren’t it’s 7.5 years after the last payment.. and since you were probably behind, it’s actually less than that). Never mind it is less than that, in practice, it is much shorter than that since creditors don’t keep track of discharged accounts for that long. In Ch 13, they could be on there for what, 12.5 years from the time you filed. And in Ch 7, you can rebuild your credit right away. In ch 13, you are rebuilding it 3-5 years later. Even with Ch 7 on there, especially an old one, you can easily get in the Excellent range (not an 850, but certainly above 720) within a couple of years — the same time period your Ch 13 peer is still in hell. This is why, basically, Ch 13 sucks. Not that anyone who could do Ch 7 would ever pick Ch 13, but I am just point out the flaw in the 7 vs 10 year argument.

  • hwy505

    I will be discharged for two years. Since the discharge I have gotten numerous credit cards, three auto loans, and was just approved for a mortgage. All this in under 24 months of rebuilding my credit. I use the cards every month and pay the balance every month – I keep my debt to credit ratio around 6%. For one year I saved and saved – that in itself showed the underwriters for my new house responsibility on my part. It is possible to recover from BK in a VERY short period of time depending on your economic makeup.

  • http://www.Credit.com/ Gerri Detweiler

    I posed this question to consumer protection attorney Jeremy Golden with GoldenCardona.com. Here’s what he said:

    The bank should only report the negative information 7 years + 180 days from the first delinquency. The bankruptcy or foreclosure date should not extend the reporting period from the bank. If the foreclosure created a public record then the credit bureau could pick that information up from the public records and report it for seven years.

    You may want to talk with your bankruptcy attorney for further information.

  • jason polanco

    Hello. I filed Bankruptcy (chapter 13) on Aug 2012 and was discharged on march 2014. I had 2 credit cards, 1 line of credit, and 1 mortgage that I did not include on my Chapter 13. My 2 credit cards and my line of credit show as “current” on my credit report. However, my mortgage shows as “Included on Chapter 13”. I contacted Expedia and Equifax to address the issue and the send me to contact the vendor (Wells Fargo) directly. However, Wells Fargo states that they are reporting the information as they should and if there is an problem, I should talk to the bureaus. Please advise and help.

    • http://www.Credit.com/ Gerri Detweiler

      Have you talked with your bankruptcy attorney? That’s the first place I would suggest you start. To protect your rights under the FCRA, you must dispute the incorrect information with the credit reporting agencies that are reporting it. Include your proof (your bankruptcy papers showing the debts that were included). If that doesn’t fix it you can talk with a consumer law attorney with experience in FCRA matters or file a complaint with the CFPB. Please read: A Step-By-Step Guide to Disputing Credit Report Mistakes

  • Michelle

    My chapter 13 was just removed from my credit report. How long will it take until I see an increase in my credit score. Also I have two property tax liens that have been released. Will this increase my score or when will it disappear from my credit.

    • http://www.Credit.com/ Gerri Detweiler

      Credit scores are calculated based on the information available at the time the report or score is requested. So the next time your credit report is used to calculate a credit score it will be based on the report that doesn’t have a bankruptcy listed.

      As for the second part of your question, this article may help: How to Make Your Tax Lien Disappear

  • Shannon Yoshikawa

    In some cases yes

  • http://www.Credit.com/ Gerri Detweiler

    I can’t give you legal advice but from what I’ve heard from other consumers, you want to be thorough.

  • http://www.Credit.com/ Gerri Detweiler

    I have absolutely no idea, and the reason I say that is your new credit score will depend on everything in your credit reports after the bankruptcy is gone. Do you have current positive credit references, low debt and an established credit history since the bankruptcy? If so then you could see it rise significantly. If you haven’t done so, you may want to get your free credit report card and see how you score for the various factors.

  • http://www.Credit.com/ Gerri Detweiler

    That’s a question for your bankruptcy attorney. He or she can tell you whether you must discharge all your debts. If you can’t keep the bank loan you can certainly start to rebuild credit with a secured card when your case is completed.

  • http://www.Credit.com/ Gerri Detweiler

    In some cases, yes.

  • http://www.Credit.com/ Gerri Detweiler

    Sorry to be the bearer of bad news but dismissed bankruptcies remain on your credit reports for the full ten years. It’s too bad you didn’t know that going in.

  • http://www.Credit.com/ Gerri Detweiler

    It means your bankruptcy case was dismissed. You are no longer protected by the court. Creditors may try to collect from you.

  • Christopher H

    Hello my brother helped co-sign for a loan on a car. And I screwed it up to the point that it was reposed, we have been sued in a civil court case. He filed for bankruptcy and his lawyer told us that all will be dismissed. But I still see it on public records and affecting my credit. What would you suggest I do next. I’m not trying to run away from the problem. I want to come out of the shadows. Thanks

    • http://www.Credit.com/ Gerri Detweiler

      If you didn’t file for bankruptcy then they can still pursue you for payment, depending on the statute of limitations. In addition, you may get a 1099-c reporting it as cancelled debt.

      Have you talked with a consumer bankruptcy attorney yourself?

      • Christopher H

        No I haven’t. I might just talk to one of their counselors and see what can be done

        • http://www.Credit.com/ Gerri Detweiler

          You’re welcome. Let us know what happens and if you have further questions. Hope you’re able to find a way to put this behind you.

      • Christopher H

        Thank you for replying btw, I appreciate your time.

  • http://www.credit.com/ Credit.com Credit Experts

    Luisa – recovering from bankruptcy can be a slow gradual process but you CAN recover. Because your bankruptcy is already four years old, your scores should begin improving gradually — but only if you’re adding new positive information to your reports to help counteract the old negative information. Bankruptcy records remain for a minimum of 7 years, a maximum of 10 years but the older they get, the less impact they’ll have. For more about how long bankruptcies are reported in your credit reports, this should help:

    When WIll My Bankruptcy Stop Staining My Credit Reports?

    And to to give you a better understanding of how bankruptcies impact your credit, and how best to recover from the damage they cause — the following resources are excellent as well:

    How Can I Get a Mortgage After Credit Problems
    How to Rebuild Your Credit

  • margaret

    I am considering filing bankruptcy but am hesitant because I am on a few accounts with my children. I am not the primary cardholder with a discover card, but am on my daughter’s card, and am on a chase account with my son. Both of these accounts are in good standing and have excellent payment history. Will either of these be affected if I file for my own personal debts that are only in my name?

    • Deanna Templeton

      Margaret – Whether or not filing bankruptcy will impact your children really depends on whether or not you include the cards in bankruptcy and how your children are listed on the accounts.

      If you file bankruptcy and include the cards, it will definitely affect any primary or joint account holders listed on the card, regardless of how impeccable the cards have been managed to date. This is one of the major drawbacks of joint and co-signed accounts, and the reason why we try to discourage consumers from co-signing or applying jointly for friends or family members. If one person defaults, both will pay the price as far as your credit is concerned. Filing bankruptcy will release you from the liability on the cards, but if your children are joint or primary cardholders, they will still be held liable for the debts.

      On the other hand, if your children are listed as authorized users, any damage caused by bankruptcy can be avoided. If this is the case, as the primary accountholder you can call and have them removed as authorized users and the bankruptcy won’t impact them at all.

      For the Discover card, you mention that you’re not the primary cardholder so the same holds true — if you’re a joint accountholder, it will hurt the both parties on the account. However, if you’re an authorized user, you’re not legally liable for the debt so you wouldn’t be able to include the account in bankruptcy anyway.

      If you’re considering bankruptcy, I’d urge you to consult with a bankruptcy attorney. In some cases, even though you may not want to include certain credit card accounts in the bankruptcy filing, you may not have that option. A bankruptcy attorney would be able examine your individual financial situation and advise you accordingly.

    • Ann Korn

      Why not just have your name removed from their accounts???

  • Dominique

    Hello. I live in a community property state and my scores are in the 800’s. I purchased a car on my own without my husband. My husband has to file bankruptcy for all the debt he acquired before our marriage. How many points will my credit score be affected for his bankruptcy? Will it hit my credit hard if I’m not on any of his debt obligations?

    • Credit.com

      Dominique – As long as you’re not on the debts being included in bankruptcy, your husband filing won’t affect your credit scores at all. The only time it would is if you were on the accounts and the accounts were reported in your credit reports. However, if you are in a community property state, and your husband’s debts were incurred after your marriage, the collector’s may attempt to try and collect the debts from you. It would depend on the what the debts are and the individual laws in your state but it’s something to keep in mind.

  • http://none Wendy dorr

    Can anyone suggest a credit card for someone with a low credit score? one with no annual fee and decent terms. also, what is a secured credit card–tell me if you’ve had experience with this thanks, Wendy

    • http://www.credit.com Barry Paperno

      Hi Wendy, While not being able to tell you exactly which card is best for your situation, for someone with a low score I would highly recommend a secured card. While I can’t promise there will be a no-fee card of any kind available to people with low scores, you should be able to find a secured card with a low annual fee and good terms, with the best secured cards reported to the credit bureaus monthly where they help to build credit scores just like unsecured cards. And just like with unsecured cards, you can make minimum monthly payments or pay in full each month to avoid finance charges; and most secured cards convert to unsecured after you establish a good payment history. Here are a few secured cards to choose from: http://www.credit.com/credit-cards/bad-credit/. Hopefully, some of our readers will weigh in with their best card suggestions. -Barry

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