By Michael S. Travis, Esq.
Consumers considering bankruptcy have many concerns about how a filing affects their credit use and credit report. In this article, we answer some common questions regarding the impact of bankruptcy.
Can I Remove A Bankruptcy Filing From My Credit Report?
Generally, no. A bankruptcy filing will remain on your report for 10 years. Pursuant to the Fair Credit Reporting Act, there are exceptions such as a Chapter 13 bankruptcy. (See 15 U.S. Code Section 1681c.) However, individuals considering filing will usually not want bankruptcy information to disappear from their credit report. If you have unpaid bills, credit cards, or lawsuits, you will want the bankruptcy to appear and show that those items were included in the bankruptcy. Anyone searching a debtor’s credit history will want to see that those debts were dealt with during the bankruptcy. That information will be helpful to both prospective employers and future creditors.
For example, when an individual goes to purchase a home post-bankruptcy, the lender will want to see that the debt was included in the bankruptcy or that the lien was avoided at the time of the filing. If the lien was avoided or the suit could not be avoided, the lawsuit and the bankruptcy filing information can clear up any discrepancy.
Can I Keep My Credit Cards After Filing Bankruptcy?
It is possible to keep your credit cards and certain accounts, but why would you want to? If you have come to the point where you need to seek bankruptcy relief, you just left that party. A typical filer will be concerned about their ability to have access to credit. However, an existing car loan or mortgage, if paid in a timely manner after a filing, will improve your credit over time. Debtors often receive offers of credit right after getting their discharge. That’s right. Creditors frequently give new lines of credit right after the discharge. Bad idea? Yes, maybe. The theory is that most debtors cannot refile a Chapter 7 for another eight years and they have wiped out other debts. Remember that lenders are looking for people to run up big balances, because those people will pay the most interest.
There is almost no beneficial scenario where you would want to keep a pre-petition credit card after you file for bankruptcy. The creditor may want you to reaffirm the debt – that is, promise to pay the debt after bankruptcy. Sometimes an individual may want to maintain a credit account because they have a checking account. You could continue to pay the loan, but the cost would be substantial and erode the benefits of filing.
How Long Does Bankruptcy Affect My Credit?
As a practical matter, bankruptcy will remain on your credit for 10 years. However, the near-term effects for many can be more positive than negative. For instance, if you have lawsuits pending or debts which cannot possibly be paid, removing them by means of the bankruptcy discharge improves the credit rating for many. On the other hand, if the debts are old enough that they will burn off after the contract period, the bankruptcy filing might remain longer.
Some debtors who have several delinquent accounts try to settle with one lender. This may work for a period of time. This may work with a larger creditor who will take payments over three months to a year. The problem then may become that other delinquent creditors will want their share as well. This makes it difficult to deal with delinquent accounts one at a time and makes bankruptcy an attractive option for many.
How Does Bankruptcy Impact My Credit Score?
There is no clear answer to this question. It depends on how bad things were prior to the filing. I used to have a “Dear Abby” style article in my waiting room. The advice given was that about two years after a bankruptcy, you would be a good candidate to obtain a mortgage. Then there was the mortgage crisis. Some people now find it difficult to obtain a mortgage even without bankruptcy and good credit. It is probably safe to say that if you keep your credit in good shape, pay secured debts on time, and save a reasonable amount for a deposit, you will probably still find someone to work with you on a mortgage. Expect to pay a higher interest rate than someone with good credit who has never filed. Car loans are not nearly as difficult to obtain, and individuals are able to purchase a car even shortly after a discharge.
How Can I Get Credit After Filing Bankruptcy?
My initial reaction is, why do you want it? Buying a house or a car and having a credit card for emergencies can be good reasons. For those folks, the same rules apply as for people looking to build credit without bankruptcy: reasonable credit use, live within your means, pay secured debts on time. All the bankruptcy filings in the world will not fix the problem of spending more money than you earn!
What About Inaccuracies On My Credit Report?
A free copy of your credit report may be obtained at annualcreditreport.com. Discharged debts should show as having no balance by virtue of being included in the bankruptcy. Misreported or inaccurate information can be corrected via the Fair Credit Reporting Act. There are limitations on the time to address inaccuracies in a credit report, so it is wise to check the credit report two to 10 months after a discharge.
Michael S. Travis
Fidelity National Title
Michael S. Travis, Consumer Bankruptcy Attorney and approved Title Agent for Fidelity National Title. He has been in practice for over 20 years, with offices in Camp Hill and York, PA. He is a general practitioner who focuses on bankruptcy, family law, wills and estate, and personal injury. His company is a debt relief agency which helps people file for bankruptcy under the Bankruptcy Code. If you are considering bankruptcy, be sure to review important disclosures found at 11 U.S.C. Sec. 527. You can reach Michael at firstname.lastname@example.org.
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