July 30, 2010

How Long Does a Bankruptcy Filing Stay on Your Credit Report?

Posted in Bankruptcy tagged at 10:25 am by demetriagraves

One of the most common questions I get asked by my clients who are considering filing for bankruptcy is how long will the filing be visible on their credit report? According to the Fair Credit Reporting Act, a consumer reporting company is officially permitted to list accurate negative information on a consumer’s credit report history for seven years (7) and bankruptcy information for ten (10) years.

This does not mean that one cannot get a job, purchase a home, rent an apartment, or even get a credit card within a few years of bankruptcy. However, it’s important that people who are newly bankrupt to be very cautious about obtaining or using any new credit cards. This is because if a new credit card is offered, it is likely to be offered with very high interest and high yearly fees. It may not be worth these fees to have the credit. In fact, people who do get credit cards after a bankruptcy are very high risk and are more likely to miss payments or have trouble paying new loans. Missed payments can further damage one’s credit, even more so than a bankruptcy. This can establish that there hasn’t been corrected financial behavior. The person who has undergone bankruptcy and then contracted additional debt is most likely to face challenges finding work, renting a house, or buying a car on credit. This is because the person continues to establish a dubious financial record. It is essential that any new debt be contracted only with a great deal of thought, and only when one has the ability to repay debt.

On your credit report information regarding a lawsuit or judgment against you can be reported for seven years or until the statute of limitation expires, which ­ever is longer. There is no time limit on reporting information about crimi­nal convictions, information that is reported in regards to a job application for a salary of more than $75,000 a year, nor is there a time limit on information reported because of an application for $150,000 worth of credit or life insurance. Thus, unless the reported information is otherwise determined and proven to be inaccurate, incorrect or downright fraudulent, negative information on your credit report can only be removed or marginalized through the passage of time.

It’s the job and duty of the credit reporting agencies to store and maintain accurate information about consumers by collecting data from credit granters and public records, including bankruptcies, judgments, and liens. Potentially negative information or remarks, such as missed payments and most public recordations, generally remain on a personal credit report for seven years, with the exception of Chapters 7, 11 and 12 bankruptcy filings, which remain for 10 years. Unpaid tax liens remain for 15 years while paid tax liens remain for 7 years. Positive information may remain on a report indefinitely, and paid-for closed accounts generally display for 10 years. Requests for your credit history remain on your personal credit report for 2 years.

While the Fair Credit Reporting Act places limits on the time period that negative information such as a bankruptcy filing notation may remain on one’s credit report, the actual time period it will remain will vary depending on the type of bankruptcy filing and whether the bankruptcy procedure was properly discharged, halted, or dismissed. The length of time that a bankruptcy filing stays on the credit record will depend on which type of bankruptcy was filed.

Chapter 7 is a type of straight bankruptcy procedure also known as a liquidation proceeding. This type of last resort bankruptcy filing is for those who have little assets or income, and have incurred so much debt that only a complete sell off will properly heal their financial position. Under Chapter 7, the debtor turns over all non exempt property to the bankruptcy trustee who then converts it to cash funds for distribution to the various creditors. The debtor then receives a discharge of all dischargeable debts, usually within four months. In the great majority of Chapter 7 bankruptcy cases, since the debtor had no significant assets to hold onto, the Chapter 7 filing will give that person, who was previously encumbered by crushing debt, a new opportunity at a fresh start.

Although the federal Fair Credit Reporting Act does provide that bankruptcy notations can remain on your credit report for 10 years. There is less reporting consistency when bankruptcy filings are dismissed by the court or filer, without a proper discharge. Not all bankruptcy filings successfully run their course and get discharged by the bankruptcy court. Sometimes, the court can dismiss a bankruptcy case, the trustee can request dismissal, or the debtor can file a voluntary dismissal for various reasons. Regardless of stoppage method, a bankruptcy dismissal derails the bankruptcy petition and procedure, and eliminates the automatic stay provision of bankruptcy where creditors are forced aside while the bankruptcy court assumes control. Without the automatic stay protection, creditors are able to once again resume collection activities against the debtor. But despite the dismissal itself which is required to be recorded on all credit reports, the original bankruptcy filing will continue to remain on the filer’s credit history for a certain period of time. One thing to note is that creditors and credit bureaus report bankruptcy dismissals differently – the time period can be anywhere from seven to ten years. That said, most other negative data and remarks on your credit report do drop off after seven years from when it was placed on the report. Here is how the big three credit reporting agencies treat subsequently dismissed bankruptcy filings:

  • The Experian credit reporting agency doesn’t list bankruptcy dismissals as a separate reporting item. On its frequently asked questions page, Experian indicates that: “Missed payments and most public record items remain on the credit report for seven years, with the exception of Chapter 7, 11 and 12 bankruptcies, which remain for 10 years, and unpaid tax liens, which remain for 15 years.” Thus the indication is that Experian reports all Chapter 7 filings, whether properly completed and discharged, or whether abruptly dismissed, for a period of 10 years. All Chapter 13 filings, whether discharged or dismissed appear to be reported for seven years (7) from the date of filing.
  • Trans Union material on its website indicates that the typical retention period for Chapter 13 bankruptcies that have been either dismissed or discharged remain on file for seven (7) years.
  • Equifax on it’s website states that it keeps in its credit reports all dismissed Chapter 13 filings for ten (10) years from the date filed. Discharged Chapter 13 filings on the other hand are only reported for seven (7) years from the date filed.

While bankruptcy filings represent a detrimental mark on your long term credit reporting history, it’s not the end of the world and the negative effects do fade with the passage of time. These days, just because someone has to file for bankruptcy protection doesn’t necessarily mean the person is broke. Bankruptcy can occur for many reasons, and it’s certainly not always the fault of the person who borrowed money in the first place. There are a variety of unforeseen situations and life emergencies that may cause one to file for bankruptcy including persistent unemployment, sudden illness or injury in the family, or simply the inexperienced use of certain financial instruments like credit cards. Bankruptcy will help you keep the creditors off your back and get you on your own financial feet again, but it’s important to acknowledge that there are long term repercussions to such a filing. But at the same time, it’s also important to know that your business and consumer life won’t just end with a one time filing for bankruptcy help.

With the passage of time, the negative reputation that follows filers of bankruptcy fades, weakens, and becomes less pronounced. Your credit rating will unlikely remain low for the entire time that the bankruptcy information remains on your credit report, and will more likely than not gradually rise over time. Credit scoring takes into account the age of any negative reports and gradually discounts the value of that information the older it is. Therefore, the more time that passes the less effect the bankruptcy mark will have on your credit score. Thus after bankruptcy discharge, a two year old bankruptcy will likely mean more to potential future creditors than a five year old bankruptcy because creditors are primarily interested in present financial circumstances. If one’s debt to income ratio is much improved from past years, the negative effect of a prior bankruptcy is likely going to be minimized. So keep in mind that negative history on your credit report is just that – history. It’s just something credit lenders will take into consideration when they evaluate your overall credit worthiness in the future. It does not doom you to perpetual credit rejection or credit purgatory, but it will challenge and should embolden you to strengthen your financial future by saving and using credit more carefully.

If you find that you are facing bankruptcy, it’s important that you get the right advice and that it is handled correctly because of these longer term implication on your credit. I offer a free confidential initial consultation where you can get all your questions answered and make sure that you are on the right financial track.

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