How Do Chapter 7 and 13 Bankruptcy Affect My Credit?
It’s a question we hear often: How long does a Chapter 7 bankruptcy stay on a credit report?
A Chapter 7 bankruptcy will remain on your credit report for 10 years, but the real impact of a bankruptcy on your credit is not as simple or as harsh as one Q&A tells you. There are factors pertaining to your financial situation that need to be weighed and considered to determine whether bankruptcy is right for you and how a bankruptcy filing will affect your credit going forward.
Sasser Law Firm can provide you with knowledgeable advice about your legal options if you are considering bankruptcy. We proudly represent clients in the Triangle and across North Carolina. Contact us today to learn about your options for getting out of debt.
What You Need to Know About Credit Reports
A credit report reflects a consumer’s history of establishing credit accounts (usually credit cards) and taking out loans and repaying the money borrowed. Lenders use credit reports to help them decide whether to loan you money and what interest rates they will charge. Others who may base a decision on your credit reports include insurance companies, landlords, and utility providers, including cable TV, internet, and cell phone service providers.
Credit reporting companies, also known as credit bureaus or consumer reporting agencies, collect and store financial data about you that is submitted by creditors, such as lenders, credit card companies, and other financial companies.
The three national credit bureaus are Equifax, Experian and TransUnion. There are also regional companies. Most people have more than one credit score.
Almost all credit bureaus use information on your credit report to assign you a three-digit FICO Score, which was created by the Fair Isaac Corporation. FICO scores estimate how likely you are to repay a loan on time, or what level of risk a creditor undertakes by loaning you money or extending you a line of credit.
FICO scores differ slightly among credit bureaus, but most have a 300-850 score range. The higher the score, the lower the risk to lenders. A good credit score is considered to be in the 670-739 score range. You may get credit or a loan with a fair score (580-669), but your interest rate will be higher.
Because a bad FICO score can cost you thousands of dollars over the life of a loan, you should check your credit reports regularly or sign up for alerts to be notified when your score changes, in case there are errors.
You can get a free credit report from AnnualCreditReport.com from each of the three credit bureaus each year. Carefully review your credit report and notify the credit bureau if there is any incorrect information that could be adversely affecting your credit.
How Does Bankruptcy Affect Your Credit Score?
A bankruptcy can initially lower your credit score. However, it is not uncommon for people who have filed bankruptcy to start seeing offers for new credit shortly after filing for bankruptcy. Also, bankruptcy can help you get a fresh start financially and decrease the amount of your discretionary income that is used on debt repayment, which can be attractive to creditors.
Bankruptcy is handled by the federal Bankruptcy Court, which makes it a public record that can be listed on your credit reports. How long a bankruptcy stays on your credit report depends on whether you file Chapter 7 personal liquidation bankruptcy or Chapter 13 debt readjustment bankruptcy, as follows:
- A Chapter 7 bankruptcy will stay on your credit reports for up to 10 years.
- A Chapter 13 bankruptcy will stay on your credit reports for up to seven years.
As you may know, it takes three to five years to complete a Chapter 13 bankruptcy and less than a year to complete Chapter 7. Yet, the bankruptcy remains on your credit record as part of your financial history for years after the court agrees that you have satisfied your debts.
The good news is that while a bankruptcy remains on your credit report, its impact on your credit rating diminishes over time if you establish a record of paying your bills on time and being creditworthy.
How to Rebuild Credit After Bankruptcy
Accounts included in a bankruptcy filing won’t be reported as “unpaid” or “past due” anymore on your credit reports. Assuming you pay new debts on time as you incur them, your credit rating will start to recover.
In the meantime, review your credit reports. Accounts that were “discharged” as part of your bankruptcy filing should be reported as “discharged” or “included in bankruptcy” on your credit reports. They should not show any money owed on them – a balance of $0.
If there are errors in a credit report, contact the credit bureau to have the report corrected.
You can also start to rebuild your credit standing by obtaining a new credit card. You may have to resort to obtaining a secured credit card, which requires a deposit with the creditor. A third option is to have a family member or friend who has a good credit history apply for a card with you as a co-signer.
Rebuilding your credit is a gradual process. As you use a credit card and pay on time each month, other creditors will see your good financial habits on your credit report when it’s time to seek additional credit. It is best to avoid carrying a balance. If you must, it should not exceed 30% of the entire line of credit. You may review some tips to improve your credit score.
Re-establishing good credit after bankruptcy will be a years-long process made possible only if you manage your spending and pay all debts on time. You have to build a record of financial responsibility that will translate to a FICO score that indicates you are a good credit risk.
The U.S. Consumer Protection Financial Bureau warns consumers to watch out for companies that promise to “repair” or “fix” your credit for a fee. No one can legally remove accurate negative information from your credit report. If there is an error on your credit report that can improve your credit, you can correct it at no cost to you.
Contact An Experienced North Carolina Bankruptcy Attorney
If you are dealing with overwhelming debt, schedule a free consultation today with our compassionate consumer bankruptcy attorneys to discuss your options. At Sasser Law, you’ll work directly with a board-certified bankruptcy attorney. We pride ourselves on giving straightforward and honest legal advice.
The Sasser Law Firm serves individuals and businesses throughout North Carolina, including in Wake, Harnett, Johnston, Durham, Orange, Granville, Vance, Franklin, Warren, Nash, Lee, Chatham, and Moore counties.
This post was originally published in October 2019 and has been updated for accuracy and comprehensiveness in August 2021.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.