When someone chooses to file for bankruptcy, regardless of what kind of filing, their credit score is going to take a hit. It is merely an unavoidable side effect of the process — and while that may sound disastrous, remember that your credit score can be rebuilt over time.
In general, a bankruptcy filing will stay on your report for about a decade; which means your credit score (for either revolving or installment debt) will be affected for some time. This means it could be difficult to obtain other lines of credit, or to obtain a loan for a significant asset, like a home or a car.
Ultimately, though, this bankruptcy filing is not meant to be a short-term fix (though in some cases, it might be). It is meant to get people out of debt and, over the long run, they end up in a happier place without a complicated financial weighing them down and stressing them out.
There are a couple of distinctions we want to make regarding Chapter 7 and Chapter 13. With a Chapter 7 filing, remember that you can protect certain assets, but not all of them. The ones left unprotected will be liquidated to pay off your creditors. There are certain processes involved for declaring which assets are protected or unprotected, so talk with your attorney before making any decisions.
With Chapter 13, the process is a reorganization of your debts and payments so that both you and your creditors are satisfied. This filing can be more complicated; though it can also do a better job of protecting your assets than a Chapter 7 (though it depends on the case).
Source: Auto Credit Express, “How Filing Bankruptcy Affects Your Credit,” Steve Cypher, Aug. 22, 2013