When seeking debt relief, it is important to understand that there is a difference between the filing date of bankruptcy and the date that the debt is discharged. For those seeking Chapter 7 bankruptcy, the debt is generally discharged four months after paperwork is filled out and the bankruptcy is approved. For those who seek Chapter 13 bankruptcy or must use Chapter 13 because they are not eligible for Chapter 7, it may take as many as five years for a debt to be discharged.
The process for discharging applicable debts under Chapter 13 is longer than the alternative because Chapter 7 involves the liquidation of the debt as opposed to a reorganization of the debt. Under a Chapter 13 scenario, a debtor must make payments to creditors for up to five years and get approval from a judge to have the rest of the debt discharged.
It is important to understand that a Chapter 7 bankruptcy will stay on an individual's credit report for 10 years after filing while a Chapter 13 bankruptcy stays on a credit report for seven years after filing. The good news is that the impact of a bankruptcy on a person's credit score and ability to get a loan fades over time.
While a bankruptcy may be an effective tool to help a person start over financially, there are consequences to a person's credit score and history that must be taken into account as well. A bankruptcy attorney may be able to talk to anyone who is considering filing for bankruptcy and guide him or her toward the right type of bankruptcy for a certain situation. An attorney may also be able to explain how long it may take a person to rebuild his or her credit after the debt is discharged.
Source: FOX Business, "When is a Bankruptcy Officially Discharged?", Erica Sandberg, August 04, 2014