1. Home
2. Bankruptcy Articles
3. Bankruptcy and Credit Reports

FAQ'S

Tuesday, September 6th, 2005

by Theodore Sliwinski, Esq.

Covered in this Article:

• How does a bankruptcy discharge affect a person’s credit report?
• How long will bankruptcy stay on my credit report?
• How does filing under Chapter 7 affect a person’s credit rating?
• Can a debtor do anything to remove a bankruptcy from their credit report?
• Can a “credit repair” company really save a debtor from bankruptcy?

1. How does a bankruptcy discharge affect a person’s credit report?

There is no question that a bankruptcy will hurt any person’s ability to get credit in the future. The fact that a person filed a chapter 7 will appear on their credit record for ten years. Generally, the best probably the only way to get good credit is to pay your bills on such terms as you originally agreed when they become due.

While the bankruptcy will be listed on your credit record, you may be fortunate enough to find a creditor who is willing to overlook this fact. However, many creditors may not overlook your bankruptcy filing. In my experience the key factor as to whether a debtor can rebuild his credit is what is their income is. If a debtor earns a substantial salary, then a creditor may be willing to take a risk and give the debtor a car loan or a mortgage. However, the interest rates normally will be very high. A person who has filed for bankruptcy will usually pay about 17% to 20% for a car loan. Moreover, a person who has filed for bankruptcy normally will pay for 12% to 14% for a mortgage. The good news is if the debtor makes regular payments on their mortgage or car loan for two consecutive years, then quite often they can refinance the loan for a lower interest rate.

Many of my clients have advised me that they received numerous credit card offers after their bankruptcy. However, all of these clients have earned substantial income. Credit card companies are not going to issue new credit cards to person who only earns a low income. A person can also rebuild their credit by using a secured credit card. After a few years of using a secured credit card many banks will issue a debtor another credit card for a low limit between the amounts of $500 and $1,000. A word of caution to all debtors, when you start using credit again, it is in your best interests to use it with great restraint. In order to reduce the risk that you will have to filing bankruptcy again, it is better to pay cash until you are better able to handle your finances.

2. How long will bankruptcy stay on my credit report?

The results of your bankruptcy case will be on your credit report for ten (10) years. The ten years are counted from the date you filed your bankruptcy. This does not mean you can’t get a house, a car, a loan, or a credit card for ten years.  In fact, you can probably get credit even before your bankruptcy is over!  The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems.

3. How does filing under chapter 7 affect a person’s credit rating?

In most situations, it will usually worsen it, if that is possible. However, some financial institutions openly solicit business from persons who have recently filed under chapter 7. If there are compelling reasons for filing under chapter 7 that are not within the debtor’s control(such as an illness or an injury, some lenders may take that into account in rating the debtor’s credit after filing. Most creditors will not advance credit or additional credit during the time between the filing of the petition and the discharge.

4. Can a debtor do anything to remove a bankruptcy from their credit report?

No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.

5. Can a “credit repair” company really save a debtor from bankruptcy?

Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings — it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, “We can fix anything” credit repair companies offer very little in comparison to the fees they charge.