What to Expect on Your Credit Report After Filing Bankruptcy
Although the decision to file bankruptcy is a difficult one, it is often the best choice when you have exhausted all other options to repay your debt. One thing that prevents some people from seriously considering this legal form of debt relief or elimination is concern about the effect that filing bankruptcy will have on their credit report.
Amourgis & Associates explores several misconceptions associated with credit reports in this post. We are sorry that you are going through a stressful financial challenge and hope this information will help you make the most appropriate decision for your circumstances.
How Long Does a Bankruptcy Filing Remain on My Credit Report?
The answer to this question depends on the type of bankruptcy you file. If you qualify for Chapter 7, which is the elimination of debts such as credit cards, medical bills, and installment loans, a record of your filing will remain on your credit report for 10 years.
Chapter 13 bankruptcy is an option for filers who wish to restructure their secured debt in addition to eliminating their unsecured debt or who do not meet the federal guidelines and state median income limits to do so. It allows you to enter into a repayment plan with your creditors over the course of three to five years. The record of your Chapter 13 bankruptcy filing will remain on your credit report for seven years. The timeline is the same for the debts associated with it.
Your Credit Score Prior to Filing Bankruptcy Matters
When considering your credit score, keep in mind that your payment history is only a portion of what goes into determining how high or low it is. While it makes up the largest percentage of your credit score at 35 percent, the following factors also contribute to your score:
- 30 percent for total amounts owed
- 15 percent for how long you have maintained a credit history
- 10 percent for how much new credit you have
- 10 percent for your mix of different types of credit
Your credit score can range from a low of 300 to a high of 850. If your score is already on the lower side, filing bankruptcy will not have as detrimental of an effect as you might assume. In fact, many clients find that filing a bankruptcy is a critical tool for improving their credit score. The actions that you take after you file will have a far greater impact on your score than the filing itself.
Your Right to an Accurate Credit Report
Under federal law, you have a right to accurate credit reporting. This right is not extinguished by filing a bankruptcy. Once you have received your discharge, your creditors MUST report your debt as “discharged in bankruptcy” or “paid as received.” The date of first delinquency MUST pre-date the bankruptcy filing, and no delinquent payments may be reported after the date of the filing. The balance owed MUST be reported as $0. Strict federal laws require this type of accurate reporting. If you filed bankruptcy and believe that some of your debts are being reported inaccurately, call your attorney right away.
If you filed a chapter 13 to restructure secured debt, such as curing your mortgage or paying off your car, or if you filed a chapter 7 and signed a reaffirmation agreement, you might assume that the creditor will continue to provide payment information to the credit reporting bureaus. That is a myth. No creditor has a duty to report to a credit reporting bureau. However, IF they report, they MUST report accurate information. If you have any questions about this, contact your attorney.
Is One Type of Bankruptcy Better in Terms of My Credit Report Than Another?
Perhaps you are considering filing for Chapter 13 bankruptcy rather than Chapter 7 because you think that creditors will view the latter filing in a more positive light. According to the Fair Isaac Corporation (FICO), the company that created the concept of credit risk by assigning a score, the type of filing you choose has no bearing on your credit score.
It is true, however, that some creditors may view a Chapter 13 filing more favorably because your creditors did not have to write off the debt as they would with a Chapter 7 filing. This is up to the discretion of each creditor that views your report. Your bankruptcy attorney at Amourgis & Associates will advise you on the best type of bankruptcy filing for your situation after meeting with you for an initial consultation.
Will the Bankruptcy Filing on My Credit Report Affect My Ability to Get New Loans?
It might surprise you to learn that it’s common for bankruptcy filers to receive numerous credit card offers in the mail once they have received an official discharge of their bankruptcy. Unfortunately, creditors are not soliciting you because they care about your financial interests. One reason is that they know you must wait several years before you can file bankruptcy again. The time frame ranges from two to eight years depending on your filing type and several other factors. That actually makes you less of a risk to them than consumers with poor credit who are considering filing bankruptcy for the first time.
Another reason creditors might solicit you is to charge you much higher interest rates than they charge other consumers. Because of your bankruptcy, they might assume that you are desperate to receive new credit and will accept anything offered to you. It is rarely a good idea to accept these offers just to rebuild your credit. There are other more legitimate ways to do so including applying for a pre-paid credit card or obtaining an account with a very low limit and paying it in full each month.
Auto sellers often have no issues working with people who have filed bankruptcy. The downside of this is that they may assign you to a subprime lender after pulling your credit report and seeing the bankruptcy filing in the public records section. Subprime lenders typically charge extremely high interest rates and offer other unfavorable conditions for your loan. If you can make any type of down payment, you may be able to qualify for a better interest rate and terms. Other types of loans, including mortgages, depend on the specific criteria of the lender.
Filing Bankruptcy Can Eventually Help You Achieve a Higher Score
When you are struggling to keep up with your debt, it can seem like enrolling in one or more debt management programs is the answer. Unfortunately, this tends to drag out your debt for a longer time frame and lower your credit score at the same time. You might also have accounts that have gone to collection that you are not able to pay even the minimum to get into good standing again. It is difficult to improve your credit score when you can’t seem to ever get out of the hole. By wiping out your debt and starting over, you will be able to improve your score much faster than if you had not filed bankruptcy at all.
When used as intended, bankruptcy is an opportunity to gain control of your financial future. The important thing is to understand what caused you to file for bankruptcy in the first place and determine how to avoid the same problems in the future.
Improving Your Credit Score After Bankruptcy
The most important thing to do to increase your score is to pay your bills on time every month in full. It is never a good idea to incur debt simply for the purpose of improving your score. However, using a revolving credit card to purchase something you intended to purchase using a debit card and then paying the balance off immediately is an excellent way to rebuild your payment history while keeping your debt to available credit ratio very low. As mentioned earlier, these two things combined make up 66% of your credit score.
Is Bankruptcy Right for You? Contact Us Today to Request a Free Consultation
Amourgis & Associates is an experienced bankruptcy law firm with multiple locations throughout Ohio. We invite you to contact us to request to meet with a bankruptcy attorney to discuss your situation. A solution to your stress and sleepless nights could be closer than you think. If you decide to file bankruptcy, your attorney will advise you throughout the process.