How Does a Discharge of Bankruptcy Affect My Credit?

How Does a Discharge of Bankruptcy Affect My Credit?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A bankruptcy discharge relieves a borrower from their legal obligation to pay certain debts. Not all types of debt can be discharged, but those that can may not be pursued by creditors—via phone, letter or other communication. This is because a bankruptcy discharge relieves the borrower of personal liability to pay certain debts.

A bankruptcy discharge relieves the borrower from their legal obligation to pay certain debts.

How Does a Debt Discharge Work?

The goal of a bankruptcy discharge is debt relief. However, when and how your debts will be relieved largely depends on which type of bankruptcy you file and the amount of outstanding debt.

For Chapter 7 bankruptcy, your nonexempt assets—like investments, valuables and property that is not your primary residence—may be divided among your creditors. Any remaining debts may be discharged. For Chapter 13 bankruptcy, you propose and prosecute a chapter 13 plan to repay certain debts. If approved by the bankruptcy court any leftover debt that is not repaid at the end of your plan may be discharged.

Debts Subject to Discharge

When considering bankruptcy, consider the type of debt from which you’re seeking relief. If credit card debt or medical bills are overwhelming, bankruptcy discharge may help. Some common discharged debts include:

  • Credit card debt
  • Personal loans
  • Past rent payments (if vacating the rental property)
  • Utility payments
  • Some business debt
  • Attorney fees
  • Medical bills
  • Some unsecured debt
  • Certain older tax debts

Debts Not Subject to Discharge

Contrary to popular belief, bankruptcy is not always the best option for relieving debt. This is because there are many forms of debt—19 forms, according to the United States Courts—that cannot be discharged. Below are 10 common examples:

  • Child support
  • Alimony
  • Student loans
  • Car loans (If you are retaining the car)
  • Mortgages (If you are retaining the real property)
  • Condo fees
  • DUI debts
  • Criminal fines
  • Court costs
  • Retirement plan loans

When Does a Bankruptcy Discharge Occur?

The timeline for a bankruptcy discharge varies greatly depending on the bankruptcy chapter. Chapter 7 bankruptcy discharge occurs relatively quickly—60 to 90 days after the scheduled meeting of creditors.  The timeline for Chapter 13 bankruptcy is much lengthier, as discharge only occurs at the end of a successful repayment plan. This typically takes three to five years.

When does a bankruptcy discharge occur? Chapter 7: 60 – 90 days. After all creditors have met. Chapter 13: 3 – 5 years. At the end of your repayment plan.

What Happens After a Bankruptcy Discharge?

After your bankruptcy discharge, it’s important to be aware of your rights and options. This way, you can start your path towards rebuilding your finances.

Notify Cosigners and Joint Account Holders 

Even though you’re no longer personally liable for repaying discharged debts, any cosigners or joint account holders may be. They should be listed in your bankruptcy schedules as “Co-Debtors” and notified by the Bankruptcy Noticing Center when creditors are notified of your bankruptcy filing.

Save a Copy of the Discharge Order 

Once your discharge goes through, you’ll receive a copy of your discharge papers. Be sure to keep this copy safe, as court clerks may charge a fee to obtain future copies. Additionally, your discharge papers (coupled with copies of your bankruptcy schedules that list your creditors) act as proof of the entry of a discharge and protect you in case a creditor attempts collection in the future.

There were over 750,000 non-business bankruptcy filings in 2019 alone.

How Does a Bankruptcy Discharge Affect Credit?

Generally, a bankruptcy discharge itself does not affect your credit score as much as the bankruptcy itself does. A bankruptcy discharge does not reset your credit history, nor does it affect the length of time in which a bankruptcy remains on your credit report. After a bankruptcy, no matter how high your credit score was, you’ll likely see a dip. 

If you default on just a few accounts with low balances—and have other accounts still in good standing—it’s likely that your credit score won’t be as damaged as it would have been if you had defaulted on many high-balance accounts. 

It takes time and effort to rebuild your credit score after bankruptcy, but the good news is that it can be done. Consider the following best practices:

  • Continue to make on-time payments on your post-bankruptcy accounts.
  • Ensure these payments are reported to the three major credit bureaus.
  • Consider applying for new credit if you think you can manage the payments.
  • Stay at your job. Borrowers with steady employment are seen as less risky.
  • Keep credit utilization low. Aim for 30 percent utilization to avoid a credit score dip.

It’s also important to continue monitoring your credit report after a bankruptcy discharge. Discharged debts should show up as “discharged” with a balance of zero. Any debts that are mistakenly reported “late” or “active” may wrongfully harm your credit score. You’ll also want to ensure that Chapter 7 bankruptcy is removed from your report after 10 years and Chapter 13 after seven years.  If you spot any of these errors, dispute them as soon as possible. Lexington Law can help do the legwork to get questionable items removed from your credit report. Contact our team to learn more about credit repair.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Reviewed by Vince R. Mayr, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Vince has considerable expertise in the field of bankruptcy law. He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.