Bankruptcy – How Long Does It Stay on My Credit?

Filing for bankruptcy is always a challenging decision. People who have exhausted all their options and cannot get another job or increase their income are faced with few choices. For most, the decision is the last straw to getting their finances back in order. Even though bankruptcy can help secure a better financial future, it isn’t without consequences. It is a serious step that can also negatively affect your credit by appearing on your credit reports and potentially lowering your credit score. Good news – it won’t hurt your credit forever, and there are steps that you can take to speed up the credit rebuilding process.

Two Main Types of Bankruptcy and your Credit

Chapter 7 and Chapter 13 are the two most common forms of bankruptcy filed by individuals. Depending on which type of bankruptcy you choose depends on how long it remains on your credit reports.

Chapter 7 Bankruptcy and My Credit

Chapter 7 bankruptcy typically stays on your credit report for seven to ten years from the filing date and allows some or all your debt to be discharged. Upon discharge, a lender cannot collect the debt, and you are no longer responsible for repaying it. Any unsecured debt which you list on your Bankruptcy schedules should be reported as discharged in Bankruptcy once you receive your Bankruptcy Discharge. Any secured debts which you reaffirm should be reported as being current even during your Bankruptcy and can help build your credit score after your Bankruptcy is concluded.

Chapter 13 Bankruptcy and My Credit

Chapter 13 bankruptcy may stay on your credit report for up to seven years. Unlike Chapter 7, Chapter 13 bankruptcy involves creating a three-to-five-year repayment plan for all or part of your debts. Once the repayment plan is completed, the dischargeable debts included will be discharged.

Much like in Chapter 7 bankruptcy, any unsecured debt which you list on your Bankruptcy schedules should be reported as discharged in Bankruptcy. Any secured debts which you maintain or cure during your Bankruptcy should be reported as being current even during your Bankruptcy and can help build your credit score after your Bankruptcy is concluded..

Lenders may also look at Chapter 13 bankruptcy more favorably than Chapter 7. With Chapter 13, you usually agree to repay a portion of your debt.

How Long Do Bankruptcies Impact my Credit Scores?

Bankruptcies may affect your credit scores for as long as they remain on your credit report (ten years for Chapter 7 bankruptcy and seven years for Chapter 13 bankruptcy). This is because your credit scores are generated based on information found in your report. However, the impact on your credit scores may diminish over time. Your credit scores could begin to recover even with the bankruptcy remaining on your credit report.

Tips to Rebuild Your Credit After Bankruptcy

Filing for bankruptcy may make receiving credit cards or lower interest rates challenging because lenders may consider you a risk. So, rebuilding your credit as soon as possible can be paramount following a bankruptcy. Here are five simple ways which may help do just that:

1. Review Your Credit Reports: Monitoring your credit is always good practice. This helps catch and fix any credit reporting errors that can occur. After going through bankruptcy, you should review your credit reports from all three credit bureaus – Experian, TransUnion, and Equifax. Check to make sure that all accounts were discharged after completing a bankruptcy. They should be listed with a zero balance and indicate that they have been discharged in bankruptcy. Ensure all other accounts listed belong to you and show correct payment statuses and open/close dates.

If you spot an error, dispute it in writing with each credit bureau that includes it.

2. Never Miss a Payment: Pay your bills on time every month. Payment history is the most crucial credit factor and accounts for 35% of your FICO Score. Repaying any outstanding debts on time can improve your credit score. Making late payments or defaulting on a loan can cause your credit score to suffer further damage.

3. Keep Your Credit Utilization Ration Low: Your credit utilization score is another critical factor in your credit score. It accounts for as much as 30% of your FICO Score. It measures how much of your credit you use versus how much you have available. For example, if you have $10,000 in available credit and use $2,000, your credit ratio is 20%.

It is suggested that you keep your credit ratio below 30%. However, you could potentially rebuild your credit faster by keeping your ratio closer to 0%.

4. Consider Applying for a Secured Credit Card: After going through bankruptcy, you will unlikely qualify for traditional credit cards. However, you may qualify for a secured credit card. A secured card is a credit card that requires a security deposit. This deposit helps establish your credit limit.

As you repay your balance, the card issuer will report your payments to the three credit bureaus. Paying your balance on time helps you rebuild your credit.

When looking for secured credit cards, compare annual fees, minimum deposit requirements, and interest rates to ensure you get the best deal.

5. Become an Authorized User on a Credit Card: If a secured credit card isn’t an option, you may ask a family member with good credit to add you as an authorized user on one of their cards. With this, you may increase your credit score if the issuer reports the positive payment history under your social security number to the main credit bureaus.

If the primary cardholder makes a late payment or exceeds their credit limit, you could also see a dip in your score.

Deciding to file for bankruptcy isn’t easy. But for some people, it is the right choice. And yes, filing for bankruptcy can hurt your credit score. However, being responsible with your credit following bankruptcy can help you rebuild while waiting for it to fall off your credit report. If you need help deciding what to do to rebuild your financial future, Miller, Hollander, and Jeda are here to help.

Miller, Hollander & Jeda’s founding attorneys began practicing in the early 1970s before putting down roots in the area and joining forces in 1992 to create the Naples, Florida, law firm that bears their names. Since its inception, Miller, Hollander & Jeda has focused on bankruptcy. The goal of our attorneys and our experienced staff, established at the outset and built upon year by year, is to use our extensive knowledge of bankruptcy law to answer the complicated questions you have regarding your financial trouble and help you solve your problems. We take pride in helping clients get a fresh start.