Credit Repair

How Long Does a Bankruptcy Stay on Your Credit Report?

More than 420,000 people filed for bankruptcy in the U.S. in 2020 by September, according to the American Bankruptcy Institute. While a bankruptcy may bring relief to those drowning under a huge amount of debt, it will also have a huge impact on your credit reports and scores for years to come.

Even though a legitimate bankruptcy filing cannot be removed from a credit report, there are steps you can take to keep your credit in tiptop shape so that once the filing eventually falls off of your report, you’ll be primed to receive better credit.

How long does bankruptcy stay on your credit report?

A bankruptcy filing hits your credit report almost instantly and has immediate, negative implications for your credit score and credit report.

If you file for Chapter 7 bankruptcy — the form in which all eligible debts are discharged immediately — the bankruptcy will remain on your credit report for 10 years. If you file for Chapter 13 bankruptcy — the form in which you agree to a three- to five-year plan to partially or fully repay your debt — the bankruptcy will stay on your credit report for seven years.

Each delinquent account included in your bankruptcy will stay on your credit report up to seven years. The seven-year countdown starts when each delinquency was first reported late and not when you filed for bankruptcy. This means those accounts included in your bankruptcy that were delinquent before you filed will fall off of your credit report before the bankruptcy does.

After those seven or 10 years are up, the bankruptcy filing should automatically fall off of your credit report. However, it’s best practice to ensure it’s been removed. Oftentimes, the credit-reporting bureaus make mistakes, and you might have to notify them in writing to remove the filing.

Once you make sure it’s fallen off your reports, if a lender checks your credit report, the bankruptcy should not be evident.

How does bankruptcy affect your credit score?

Bankruptcy hits one’s credit report almost immediately because the three credit-reporting agencies proactively go out and pick up bankruptcy filings from public court records.
However, the amount your credit score dips as a result depends on how high it was before you filed for bankruptcy.

For example, if you have an average credit score of 680 (which is considered a “good” score according to FICO), it will typically decrease by 130 to 150 points.

A score of 780 (which is considered “very good”) will decrease by 200 to 240 points — bringing your score down to 580 to 540, which is in the poor to fair range.

People often think that bankruptcy is going to kill their credit score. But in reality, most people who file for bankruptcy don’t have stellar credit to begin with. Most of their problems began before they filed.

Usually, there’s a crescendo of accounts going into minor forms of delinquency, major forms of delinquency, default and then boom, the collections start hitting the credit report. It’s the buildup to the filing that really causes the scores to plummet.

But the adverse impact of bankruptcy on your credit score will lessen over time as you build up a positive account and payment history to your credit reports.

Can you remove bankruptcies from your credit report?

If the bankruptcy filing is legitimate, it cannot be removed from a credit report. Because bankruptcy is a public record — it’s done in court and is a public action — it cannot be removed the way you might get a late payment from a Macy’s credit card removed from your credit report.

If the bankruptcy is correct, meaning that it actually belongs to you, and it’s verifiable — meaning that the bureaus can verify its accuracy if you challenge it — then seven to 10 years is how long you’re going to have to live with it.

However, if the bankruptcy was fraudulent, inaccurately filed or didn’t drop off of your credit report after seven or 10 years, there are steps you can take to have it removed from your credit report.

First, review your credit reports with the three major credit bureaus: Experian, Equifax and TransUnion. The bankruptcy filing will be located with other public record information, such as civil judgments and tax liens.

If a fraudulent bankruptcy appears on your credit report, or you notice inaccuracies regarding the bankruptcy you filed, you’ll need to file a credit report dispute with the credit-reporting agencies in question.

Credit-reporting agencies will typically investigate the error within 30 days, according to the Federal Trade Commission (FTC). If an error is found, all three credit-reporting agencies will be notified. You can also ask that the credit-reporting agency send the corrected report to anyone who requested it in the past six months.

Should you use a credit repair agency?

You may be tempted to turn to a credit repair agency to see if they can get your bankruptcy records scrubbed from your account, but don’t fall for empty promises as it is impossible to remove a legitimate bankruptcy filing from your credit report early.

Additionally, credit repair agencies may be rife with scams and inaccurate claims of how they can help you, and their services can be expensive. Disputing fraudulent activity or inaccurate information listed on your credit report on your own is relatively easy and can save you from any fees paid to a credit repair agency.

How to build credit after bankruptcy

Although a bankruptcy filing will eventually fall off your credit report, by no means will your credit scores suddenly skyrocket.

Plus, there are a lot of times when you apply for certain kinds of credit where you’ll still have to state if you’ve ever filed for bankruptcy. So it can haunt you for a really long time.

Because it’s difficult to secure credit after filing for bankruptcy, it can be hard to increase your credit score quickly. But there are steps you can take to incrementally improve your credit score so that it will be in better shape once the seven or 10 years has elapsed.

Get a secured credit card. Secured credit cards, which are designed for individuals with limited or poor credit history, require a security deposit and typically report account and payment to the major credit bureaus. The security deposit serves as a line of credit and can be refunded (minus any balance or fees owed) once the account is closed.

Open a traditional credit card account. People who have filed bankruptcy actually have an easier time getting approved for new credit than you might think. But because their credit is likely poor due to the bankruptcy, they have to contend with fewer good credit card options. For example, the card may offer a higher APR and fewer perks than a credit card designed for individuals with good credit.

Apply for a credit-builder loan. Credit-builder loans are specifically designed to help consumers demonstrate consistent and on-time payment history. Geared toward consumers who have little or no credit or adverse marks on their credit, these loans are for small amounts (usually under $3,000) and have short loan lengths (typically 12, 18 or 24 months).

With credit-builder loans, the borrowed amount is placed in a savings account while you make fixed monthly payments toward the balance. These payments are reported to the major credit bureaus, which can help build your credit score as long as you pay on time each month. Once the loan is paid in full, the lender will return the total amount you paid (including any interest earned).

Become an authorized user. If you have a family member or significant other who practices responsible card usage, you may benefit from being added as an authorized user on his or her credit card account, since the primary cardholder’s positive credit activity will be reported on your credit report. Just know, if the primary cardholder misses payments, incurs late fees or has a high balance, that negative activity may be reported on your credit as well.

 

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