In the modern world, your value is measured based on your credit report.
It’s the only way a potential creditor knows about your financial situation. Many employers check your credit before offering you a job. Insurance companies use credit scores to determine the rates you pay. And that’s just scratching the surface of the ways your credit report affects your life.
That’s why you should review your credit reports regularly after your bankruptcy case is finished, and take the simple steps to repair your own credit.
Most people also want to remove the bankruptcy from their credit records because they worry about the impact it will have on their ability to get a new mortgage, car loan, or job.
Before you start to panic, here are the facts.
How Long Until Bankruptcy Falls Off Your Credit Report?
Talk to different bankruptcy attorneys and credit professionals, and you’re sure to get just as many answers about the length of time the bankruptcy stays on your credit report before it is removed.
According to Experian, the credit reporting agency:
The bankruptcy record from the court is deleted either seven years or 10 years from the filing date of the bankruptcy depending on the chapter you declared.
Chapter 13 bankruptcy is deleted seven years from the filing date because it requires at least a partial repayment of the debts you owe. Chapter 7 bankruptcy is deleted 10 years from the filing date because none of the debt is repaid.
Individual accounts included in bankruptcy often are deleted from your credit history before the bankruptcy public record. Usually, a person declaring bankruptcy already is having serious difficulty paying their debts. Accounts are often seriously delinquent before the bankruptcy.
All delinquent accounts are deleted seven years from the original delinquency date, which is the date the account first became delinquent and was never again current. Declaring bankruptcy does not alter the original delinquency or extend the time the account remains on the credit report.
If the account was delinquent before being included in the bankruptcy, it will probably be deleted before the bankruptcy public record because the original delinquency date is typically earlier than the bankruptcy filing date.
(The boldface is mine, by the way)Chapter 13 bankruptcy is deleted from credit 7 years from filing, 10 years for Chapter 7.Click To Tweet
Bankruptcy’s Impact on Your Credit Score
When you file bankruptcy and get relief from your bill problems, you no longer owe any money to your creditors. You no longer have to suffer with the continuing delinquencies.
If you take some simple steps to rebuilding your credit after bankruptcy, your credit score will start to rise pretty quickly. After as little as 18-24 months, your credit report will be a thing of beauty.
In fact, according to a report released by the Federal Reserve Bank of New York in May 2015:
According to the Federal Reserve bank, credit scores go up after bankruptcy.Click To Tweet
The individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy, whereas the recovery in credit score is much lower for individuals who [are in debt but who] do not go bankrupt.
Bankruptcy’s Impact on Getting a New Job
Employers are allowed to use credit reports to make hiring decisions, as well as when they evaluate employees for promotion, reassignment, and retention. In fact, many employers ask for credit reports, driving records, and criminal histories.
The prospective employer has to let you know they’re going to pull your credit report and get your written authorization to do so.
The bankruptcy law says the government can’t deny you a job just because you filed for bankruptcy. Private employers can’t fire you because you filed for bankruptcy.
As to new employers, the rule is unclear because that part of the law is written poorly. Courts in New York have ruled that a private employer can’t refuse to hire you because you filed for bankruptcy. Judges in Mississippi, Pennsylvania and Florida, however, have said the opposite.
My experience as a bankruptcy lawyer over the past 20 years shows it’s better to be out of debt when you apply for a new job than to have past due debts showing up on your credit report.
If you owe money, your employer may think you’ve got a motivation to steal. Once you’re debt free, that motivation disappears and your potential employer is likely to be more comfortable hiring you. Lots of people have come to me after Human Resource Managers and headhunters have told them to get their debts wiped out to for a better chance at a good job.
If an employer denies your job application, reassignment request or promotion, or fires you then they’re required to let you know they took the action on the basis of your credit report. Given the fact that they rules vary based on where you live and work, I recommend you talk with a lawyer if this happens to you.
Why Credit Repair Isn’t the Way to Go
Under the Fair Credit Reporting Act, a credit reporting agency has the right to report any information that is truthful and accurate. That includes the fact that you filed for bankruptcy.
If there’s inaccurate information on your credit report, you can dispute those errors and demand that the credit reporting agency conduct an investigation. If the investigation reveals that you’re correct then the inaccuracy should be removed from your credit report.
In the case of bankruptcy, reporting it on your credit report is accurate. Trying to remove it by saying that it’s inaccurate is a lie. You wouldn’t be disputing an inaccuracy, you’d be trying to game the system.
That’s what so many of the credit repair scams do – try to game the system in an effort to get the credit reporting agency to remove the bankruptcy from your record by disputing over and over again.Credit repair companies try to game the system, but it's not a permanent fix.Click To Tweet
Sometimes it works, but it’s not permanent. Eventually the bankruptcy will reappear on your credit record because the court record section of your credit report is updated regularly.
Let Nature Take Its Course
Make sure your credit report is accurate. Once you’ve corrected any errors, sit back and start working on improving your financial situation. Your bankruptcy will come off your report in due course. In the meantime, do what you can to make sure it doesn’t impact your life and ability to get new credit.
It’s far more important that worrying about the impact of your bankruptcy on your credit report or score.