A bankruptcy can protect you when financial disaster strikes. If you can no longer afford to keep up with the payments on your credit obligations, bankruptcy may offer some much needed relief.
Yet filing for bankruptcy can also have unpleasant consequences when it comes to your credit. A bankruptcy on your credit reports may lower your credit scores and make it tough to qualify for new financing. Filing for bankruptcy doesn’t mean you have no options, but it can make your options limited and more expensive.
Because of the difficulty a bankruptcy can cause you, you may wonder if it’s possible to remove it from your credit reports. The answer to this question isn’t simple. Sometimes you can remove a bankruptcy from your credit report while other times you can’t.
When you suspect that a bankruptcy on your credit reports is incorrect in some way, you can ask the credit bureaus to delete it. But if the bankruptcy is accurate, you might be stuck with the entry on your reports for up to a decade.
Even then, you’re not stuck with bad credit for 10 years. You can work to improve your credit situation while a bankruptcy is still on your reports.
Chapter 7 vs Chapter 13 Bankruptcy
Before looking at how bankruptcy affects your credit, it helps to understand how bankruptcy works. Two common types of bankruptcy are Chapter 7 and Chapter 13. Both options can help you if you’re struggling with an unaffordable debt burden, but they operate in different ways.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is known as liquidation. It wipes out your eligible debts (typically within three to four months) and you’re not required to make additional payments. But if you own property like a home or a vehicle, you might have to give it up unless you qualify for an exemption.
Before you can file for Chapter 7 bankruptcy you may have to pass a means test. A bankruptcy attorney can help you figure out if you’re eligible to file for Chapter 7 bankruptcy, or help you determine if Chapter 13 might be a better option.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also called a wage earner’s plan. It’s the option you might choose if you have property you want to keep or if you earn too much to qualify for Chapter 7.
A Chapter 13 bankruptcy can help you stop debt collection efforts and halt the foreclosure process. But it doesn’t automatically wipe out your debt. Instead, it helps you combine your debts together so you can make one payment that you can afford.
You make a single payment to a trustee who distributes payments to your creditors.
Once you make payments for three to five years (depending on your specific case), the remaining balances on qualifying debts are wiped out when your bankruptcy is discharged. Talk to a bankruptcy attorney for more information and to discuss your specific situation.
Types of Accounts Included in Chapter 7 and 13 Bankruptcy
Dischargeable Debts
Debts you’re allowed to include in a bankruptcy are known as “dischargeable.” Some common examples of these debts include the following.
- Medical Bills
- Collection Accounts
- Credit Card Debt
- Personal Loans
- Past-Due Utility Bills
- Some Judgments
- Some Older Tax Bills and Penalties (Exclusions Apply)
Non-Dischargeable Debts
Debts you can’t include in bankruptcy are “non-dischargeable.” Below are some common types of debts a bankruptcy probably won’t help you resolve.
- Alimony
- Child Support
- Federal Student Loans (Hardship Exemptions Available)
- Some Taxes (e.g., Income Taxes, Withholding Tax, and Social Security Tax)
- Debts Resulting from Fraud
- New Debts Incurred After Filing Bankruptcy
- Debts That Belong to Someone Else
How Long Does Bankruptcy Stay on a Credit Report?
Chapter 13 stays for 7 years, Chapter 7 stays for 10 years. The Fair Credit Reporting Act (FCRA) lets any bankruptcy stay on your credit report for up to 10 years. The credit bureaus take Chapter 13 off sooner.
- Chapter 7 Bankruptcy: Stays on your credit report for up to 10 years from the filing date.
- Chapter 13 Bankruptcy: Equifax, Experian and TransUnion remove it 7 years from the filing date, even though the FCRA would allow up to 10 years.
Where to Find a Bankruptcy on Your Credit Report
You should review your credit reports often to make sure they’re accurate. You can claim a copy of all three of your reports once per week from AnnualCreditReport.com.
When you’re reading your credit report to see if a bankruptcy is listed, start by finding the public records section of the report.
In the past, tax liens and judgments could be found in this section too. However, the credit bureaus removed civil judgments and tax liens from credit reports in 2017 and 2018 as part of the National Consumer Assistance Plan (NCAP). Now, bankruptcies are the only public records included on consumer credit reports.
How Bankruptcy Impacts Your Credit
When you file for bankruptcy protection from your creditors, the impact on your credit reports and scores is often severe. As long as a bankruptcy record is on your report, it may damage your credit rating.
You can’t put a number on how much a bankruptcy may lower your credit scores in advance. You have to wait and see the impact when it happens.
A bankruptcy filing isn’t considered in a vacuum. Instead, a credit scoring model considers all of the information on your credit report together when it calculates your credit score. So, a bankruptcy might affect your score differently than it affects the next person.
If your credit report was already severely damaged before you filed for bankruptcy:
One more negative item might not lower your credit scores as much as it would on a clean report.
If your credit report was in great condition before the bankruptcy:
The subsequent drop in your score could potentially be extreme. Also, the more accounts you include in your bankruptcy filing, the worse the impact may be on your credit scores.
Rebuilding Credit After Bankruptcy
You can work to improve your credit scores even while a bankruptcy is still listed on your credit reports. Establishing new credit can help. You shouldn’t expect those positive accounts to fix everything, but they can be a step in the right direction if you manage them carefully.
It’s true that qualifying for new credit after bankruptcy can be tricky. Yet if you apply for the right kinds of accounts, your odds of success should be higher.
3 Ways to Rebuild Credit After Bankruptcy
- Secured credit cards generally have easier qualification standards than traditional, unsecured credit cards.
- Credit builder loans tend to be easier to qualify for, even with past credit problems.
- Authorized user status might help you if a loved one adds you onto an existing, well-managed credit card.
Regardless of the type of accounts you open, be sure to make every payment on time. With credit cards it’s also important to pay your balance in full monthly and keep a low debt-to-limit ratio on the accounts.
Can You Speed Up the Removal Process?
The FCRA lets the credit bureaus include bankruptcy filings on credit reports for up to 10 years in some cases. But there are other rules the credit bureaus must follow as well. The FCRA requires the bureaus to follow reasonable procedures to make your credit report as accurate as possible.
Credit reporting errors aren’t uncommon after a bankruptcy (or at other times, for that matter). In a 2013 FTC study of credit report accuracy, one in four consumers identified errors on their credit reports that might affect their credit scores.
If you discover an error or questionable information on your credit report, you have the right to dispute the item. This rule applies to bankruptcies too. You can dispute a bankruptcy you disagree with on your own or with professional help.
Removing a Bankruptcy from a Credit Report on Your Own
You can dispute a bankruptcy directly with each credit bureau that lists it. If the bureau finds the item is inaccurate, incomplete or can’t be verified, it must correct or delete it. The investigation generally takes 30 days, up to 45 in some cases.
A disputed item can also be verified and stay on your report. If the bankruptcy is accurate, it can legally stay for the full reporting period.
Getting Professional Help for Bankruptcy Disputes
Some people prefer to hand off credit disputes because they’re busy or feel overwhelmed by the process. If that’s more work than you have time for, a reputable credit repair company can handle the disputes for you.
A credit repair company can only challenge items that are inaccurate, incomplete or can’t be verified. To see what’s on your reports, start a free credit review.
Bottom Line on Removing a Bankruptcy from Your Credit Report
You can dispute a bankruptcy that’s wrong on your credit report, and the bureau must delete it if it can’t be verified. An accurate bankruptcy stays for 7 years (Chapter 13) or 10 years (Chapter 7). Meanwhile, on-time payments on a secured card, credit builder loan or authorized user account can help you rebuild.
Ashley Davison
EditorAshley is currently the Chief Compliance Officer for Credit Saint, previously the Chief Operating Officer. Ashley got into the Financial world by working as a Logistics Coordinator at Ernst & Young. Coming from a previous career in education, she is eager to teach the world everything she knows and learn everything that she doesn’t! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, a Certified Credit Score Consultant with the Credit Consultants Association of America, UDAAP certified, and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.
