Bankruptcy and Your Credit Report

You’ve probably heard that one of the negative consequences of filing bankruptcy is a decrease in your credit score. If you’ve always had good credit, this may not seem like a big deal, but having negative information on your credit report can hinder several areas of your financial life. It may be more difficult to get credit in the future, and when you do take out a loan or get a credit card, your interest rate will be higher than usual. Bad credit can also keep you from renting from some landlords or even getting some types of jobs, especially jobs that are related to finance. Fortunately, there are several ways you can rebuild your credit more quickly than you might expect. Also, negative information doesn’t stay on your credit report forever. The Fair Credit Reporting Act (FCRA) sets guidelines for how long negative items may remain on your credit report.

Your Report

A bankruptcy will have a significant impact on your credit score, and a Chapter 7 will stay on your credit report for 10 years, while a Chapter 13 may be removed after 7 years.

Most people don’t go from timely payments and no financial problems straight to bankruptcy; a bankruptcy is usually accompanied by other financial happenings that will show up on your credit report. A delinquent account, even if you only missed one payment and then got caught up, will be noted on your credit report for 7 years. This generally only applies to accounts that were 30 days or more overdue.

After repeated or several missed payments, your account may be referred to collections. Whether your debt was sold or transferred to a collection agency or just moved to the collections department within your creditor’s company, this activity will show on your credit report. This will stay on your report for 7 years plus 180 days after your first missed payment.

If your account is sent to collections and you still aren’t able to get caught up on payments, your creditor may file a lawsuit against you. If a judgment was issued, two dates apply: 7 years from the filing of the lawsuit and 7 years from the judgment date. If this applies to you, look into the statute of limitations for your state; you may be able to have this information removed prior to 7 years, which will improve your score and financial situation.

Not All Negative

If you’ve gone through a difficult financial time, don’t worry that this means you won’t be able to get credit or make large purchases for the next decade. You’ll be able to get a secured credit card right after your case is completed and could be able to purchase a home in just a few years. The most important thing to remember is to use your new credit responsibly and to be patient. It will take time to rebuild your credit and qualify for lower interest rates, and if you’re planning on buying a home, you’ll need to have a large down payment. Also remember you aren’t alone. Over one million Americans file bankruptcy each year and go on to a more successful financial future.

Take Positive Steps

Don’t let the fear of a bad credit score keep you from taking advantage of bankruptcy. While it’s nothing to jump into without researching all your options, bankruptcy truly is a tool that can give you a new financial start. Call me today so that we can come up with a plan to get your finances in order.