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How long may Chapter 7 bankruptcy affect credit?

Many Kentucky residents may be aware that filing for any kind of bankruptcy, especially a Chapter 7 liquidation, will affect one's credit rating. But what is a credit rating exactly? The credit rating is a number used by many banks and other lenders to determine whether an individual is a good risk to lend money to. What this means is that though lending money to anyone is always a risk, people who have a history of paying their debts on-time and in full are seen as more likely to continue to do so in the future. Thus, banks and other institutions are more likely to extend better interest rates and higher available credit lines to such people.

Obviously, filing a Chapter 7 Bankruptcy means that the filer is saying he or she is unable to pay all of his or her debts. Therefore, such filings are reported to the three credit agencies that keep record of consumer debt payments and issue credit ratings used by financial institutions. For a Chapter 7, the filing can affect a person's credit history for 10 years from the date the bankruptcy petition is filed. This means that for 10 years after the bankruptcy filing there will be a 'negative' mark on that person's rating.

What affect this has on any individual credit rating will depend on the rest of that person's credit history. Many people who have filed bankruptcy worry that they will never be able to borrow money again. However, this is often not the case. While the bankruptcy will certainly affect the way lenders see the person's request for credit, there may be options. For example, some credit card companies will issue cards with higher interest rates and lower balances to people with such negative marks. There is also the possibility of secured credit where the borrower places a certain amount of money in an account as security for the use of the credit privilege.

It is important to note that people who file bankruptcy may be able to build their credit back up, and possibly before the 10-year term after filing has run. However, such individuals should be careful about jumping into grabbing credit opportunities, lest they find themselves in situations like the ones that led them to filing bankruptcy in the first place.

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