Does Bankruptcy Show in a Credit Check?

Bankruptcy tends to be the last step when you cannot resolve your debt problems through simpler means like a budget or professional debt management plan, according to the Federal Trade Commission (FTC) website. Bankruptcy clears your debt or helps you repay it, but your credit score also takes a big blow because this court act is reported on your credit bureau records and stays there for several years.

Time Frame

Consumers usually file Chapter 7 bankruptcy, which eliminates almost all bills, or Chapter 13 bankruptcy, which creates a court-ordered payment schedule, the FTC website advises. Both types stay in Experian, Equifax and TransUnion credit bureau records and affect credit checks for 10 years. Lenders weigh the bankruptcy against your current credit management practices when considering application approval.

Effects

Bankruptcy hurts you in credit checks because it shows lenders that you allowed your debt to get out of control. The MyFICO credit scoring website explains that it also impacts your score, although the exact drop varies. You suffer the most impact if your score was high before your bankruptcy. The effect is more minor if you were already behind in your bills and had many negative items on your credit reports.

Considerations

Bankruptcy law forces you to undergo financial counseling both before and after filing, the FTC website explains. The initial counseling shows you alternatives and the later session covers budgeting and money management. The budgeting session is particularly important because it teaches you to avoid the issues that caused your financial problems. You can undo much of the damage to your credit file if you use new skills to manage new accounts properly. Your recent accounts show up in the credit check along with the bankruptcy, offsetting some of the negativity.

Warning

You may have a hard time getting new accounts right after your bankruptcy, even though they are necessary to repair the damage. Secured credit cards offer an initial solution because you put up your own money to guarantee them, MSN Money website writer Liz Pulliam Weston advises. You give the bank a deposit of at least $200 to $300, and it freezes those funds and gives you a card with an equivalent line of credit. Your account shows up in credit checks, so on-time payments show lenders that you are working hard to repair the damage to your credit rating.

Limitations

The FTC advises that you can file bankruptcy more than once, but there is a waiting period. You can file Chapter 7 bankruptcy once every eight years, while Chapter 13 only requires two years between filings. Multiple filings look much worse in credit checks than just one case that is followed by good financial records.