How long does bankruptcy stay on your credit report?

According to federal government data, bankruptcy filings were down nationally last year. Statistics show that in the 12-month period ending June 30, 2019, there were 773,361 filings, up from 775,578 cases the year before.

However, with rising unemployment and the effects of the coronavirus pandemic being felt across all sectors of our economy, many experts agree that we could see this trend reversed quickly. This includes bankruptcy for individuals and also for businesses struggling to pay their bills and manage their debts in an unpredictable environment.

How long does it take to remove bankruptcy?

If you are on the verge of bankruptcy or have just declared bankruptcy, you may be wondering how long you are going to have to face the consequences of your decision. It all depends on when you filed for bankruptcy, as well as the type of bankruptcy for which you filed for bankruptcy.

Here’s how long bankruptcy stays on your credit reports:

  • Chapter 7 Bankruptcy, which allows low-income people to liquidate their assets and eliminate their debt, stays on your credit report for ten years.
  • Chapter 13 Bankruptcy, which allows consumers to organize themselves and pay off some of their debt while eliminating the rest, stays on your credit report for seven years.

Note that these deadlines begin on the date you file for bankruptcy, not the date your bankruptcy is discharged.

Consumers who have filed for bankruptcy are right to be concerned about how long bankruptcies persist on their credit reports, but it’s important to note that you may see less of an impact on your credit over time. Generally speaking, the most recent bankruptcies wreak the most havoc on your credit score, so a bankruptcy filed three months ago is much more damaging than a bankruptcy filed eight years ago.

Can You Remove Bankruptcy From Your Credit Report?

You may have heard that you can dispute information on your credit reports, but keep in mind that the dispute process only works for errors and misinformation. Bankruptcy will not be removed from your file through this process, so you are better off using your time and energy to improve your credit.

Also, be aware that after waiting seven or ten years, depending on the type of bankruptcy, you won’t have to do anything to have your bankruptcy removed from your credit reports. The details will be deleted automatically by the credit bureaus.

Negative information on your credit report is treated differently

According to Experiential, one of the three credit bureaus, specific accounts that are past due when included in a bankruptcy will be deleted seven years from the date you were initially in arrears.

This is how all negative information, including late payments, is handled when it comes to your credit reports. Generally speaking, negative ratings such as late payments and overdue accounts will stay on your credit reports for seven years before automatically disappearing.

How to improve your credit after bankruptcy

You may be disappointed to know that bankruptcy can sit on your credit report for a decade and there is nothing you can do to make it go away sooner. However, there are still many steps you can take to recover from bankruptcy much faster than many people realize.

If you want to be able to get a mortgage, finance a car, or get approved for a line of credit in the years following bankruptcy, consider these tips:

Make sure you pay all your bills early or on time

Your payment history is the most important factor that makes up your FICO score, accounting for 35%. With that in mind, you’ll want to make sure you pay each bill early or on time. Set a reminder on your phone if you need to, or take the time to set each of your bills to auto pay. Whatever you do, don’t end up with a late payment which will only further damage your credit score and prolong your pain.

Pay off the debt

If you’ve filed for Chapter 13 bankruptcy in order to reorganize your debt, you may see an improvement in your credit score as you pay off your balances. Since your credit usage – the amount you owe against your credit limits – accounts for an additional 30% of your FICO score, paying off debt should help you increase your score over time.

Sign up for a secure credit card

Getting approved for a traditional credit card can be difficult after bankruptcy, but almost anyone can get approved for a secured credit card. This type of card requires a cash deposit as collateral and tends to have low credit limits, but you can use a secured card to improve your credit score since your monthly payments will be reported to all three credit bureaus – Experian, Equifax and TransUnion.

Learn positive financial habits

As time goes by after your bankruptcy and you start getting new forms of credit, make sure you don’t fall back into the same habits that caused your problems. Only use credit for purchases you can afford to pay, and try to use a monthly budget to plan your spending. Also, work on build up an emergency fund to cover three to six months of expenses so that a surprise bill or a random emergency doesn’t make you lose control of your finances.

At the end of the line

Bankruptcy is not the end of the world, but the consequences can last up to a decade or more. If you find yourself in the unfortunate situation of having filed for bankruptcy, your best bet is to learn as many lessons as possible and focus the rest of your attention on how to build a better future. Your bankruptcy will eventually disappear from your credit reports, but the habits you develop in the meantime will determine your future.

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