Anyone with mounting debt and is struggling to repay it could be considering filing for bankruptcy. While the act in itself is an excellent way to wipe your loan, the trade-off is that you inform the financial world that you’re a credit risk. It may take a long while before you can start over again in building good credit.

What is Bankruptcy?

Bankruptcy is a legal proceeding that involves a business or individual that is unable to repay their debt. It is carried out to allow the debtor who filed the petition freedom from their debts, while also providing a chance for creditors some repayment of the debt through the debtor’s declared assets available for liquidation.

Bankruptcy is handled in federal courts, and the rules are outlined in the U.S. Bankruptcy Code. There are three types of bankruptcy and commonly referred to by their chapter within the code.

The debt discharged in bankruptcy allows a fresh start to those who petitioned for it. But, it also means challenging years ahead and often difficult credit opportunities, especially when you need one.

However, the myth that bankruptcy can eliminate all types of debts is simply untrue. The law mandates that there certain types of debts that will remain unforgivable:

  • Most student loan debts
  • Court-ordered alimony
  • Court-ordered child support
  • Reaffirmed debt
  • A federal tax lien for taxes owed to the U.S. government
  • Government fines or penalties
  • Court fines and penalties
filing for bankruptcy

Who reports bankruptcies? Learn how your case is handling when filing for bankruptcy.

What are the Advantages and Disadvantages of Filing for Bankruptcy?

Because of the known potential damage of bankruptcy on your credit record, filing for it is not always the initial recommendation when you begin to struggle to pay your debt. In fact, it’s hard to weigh on the choice of whether to file or not because the wrong decision would impact you in one way or another.

Here is what you need to know on both the advantages and disadvantages of filing for bankruptcy:


  • Automatic suspension of debt collection – Once you file your petition, the court will automatically issue a stay against the order on all debt collection activities until your case is complete or the stay order is lifted.
  • Dischargeable debts – Dischargeable debts are those that the bankruptcy can eliminate. These include credit cards, medical and utility bills, and personal loans.
  • Possible asset exemptions – Some exemptions protect up to a certain amount of assets such as the cases of Chapter 7 and Chapter 13 bankruptcies. This means you may be allowed continuous ownership of some of your assets after bankruptcy.
  • Improved credit score after filing for bankruptcy – You can begin to raise your credit score back up with smarter credit management after the bankruptcy. In just a few years, your score may move up to the good credit score range.


  • Loss of credit cards – When you file for bankruptcy, your credit card companies will automatically cancel any cards you still carry. If you need to have a set of cards, you may apply for a secured credit card instead.
  • Difficulty obtaining any types of loan – Bankruptcy will show its impact on your credit report and bad credit score for many years. Hence, you will experience difficulty obtaining any type of loan.
  • Loss of property and real estate – It is not always expected that certain property and real estate can fit under an exemption.
  • Denial of tax refunds – Bankruptcy can cause state, local, or federal tax refunds to be denied.
  • Job and housing stigma – Potential employers and landlords ask questions about recent bankruptcy that you may have filed. It may affect your job or tenant applications negatively.
  • Non-dischargeable debts – Not all types of debts can be discharged under bankruptcy.

3 Types of Bankruptcies and Their Impact on Your Credit Report

As long as the bankruptcy is listed on your credit report, it will always be factored into your score. However, as time passes, the negative impact of bankruptcy will become less and less.

Typically, here is how long you can expect bankruptcies to remain on your credit report from the date it was filed:

Chapter 7 Bankruptcy

Individuals, and some businesses, mostly file Chapter 7 bankruptcy. It is often referred to as liquidation bankruptcy because the person filing is basically selling off their assets to repay their debt. This type of bankruptcy allows them to dispose of their unsecured debts. If they have no valuable assets and only exempt property, they may end up repaying no part of the unsecured debt.

The legal process takes about 3 to 4 months, while the bankruptcy information stays in your credit record for ten years.

Chapter 11 Bankruptcy

This type of bankruptcy is for businesses that plan to remain in operation with a goal of “reorganization” – pay existing debts, cut costs, and create new plans for profitability.

The bankruptcy information remains in the credit record for 10 years.

Chapter 13 how bankruptcies are reported

This is a type of bankruptcy for individuals with a secure income. Also referred to as a “wage earner’s plan”, this bankruptcy allows repayment plans, usually on installment, with no liquidation of assets. The individual, however, must guarantee a secure source of income for the next 3 to 5 years.

The bankruptcy information remains in the credit record for seven years.

Who Reports Bankruptcies to Credit Bureau?

Once a case is filed in the bankruptcy court, that case now remains in the court’s permanent records regardless of its disposition – open, closed, discharged, or dismissed.  However, the courts do not send or provide information to credit bureaus.  It is the credit bureaus and other information providers that take responsibility for collecting such information from public records.

In monitoring your credit report after a bankruptcy case, look for the inaccuracy of information filed on your report and contact the credit reporting agencies to dispute the information. The court cannot act on any inaccuracies because they have no jurisdiction over credit reporting agencies.

Likewise, be mindful that the Fair Credit Reporting Act, the law that regulates credit reporting agencies, mandates that they cannot report a person’s bankruptcy case after ten years from the date the case was filed.

It’s too common for people to avoid filing for bankruptcy because of its impact that will haunt them for years. But the reality is that when they begin to struggle in the repayment of their debts, they start to drain their assets or tap on their retirement accounts.

Seek counsel on the best options before considering bankruptcy or the right time to file for it.

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