The process of declaring bankruptcy and going through all the court proceedings can be overwhelming. And it’s even more unsettling to know that once your bankruptcy is discharged, you’re left to pick up the pieces of your damaged credit profile that remain.
But where do you start? And are you doomed until several years have passed and the bankruptcy finally falls off your credit report? Read on to learn more about the reporting timelines for bankruptcy, how to remove a bankruptcy from your credit report, and steps to take to start repairing your credit right away.
Bankruptcy Reporting Timelines
The reporting timelines for bankruptcies are as follows:
- Chapter 7 Bankruptcy– 10 years from the filing date (no debts repaid)
- Chapter 13 Bankruptcy– 7 years from the filing date (some debts repaid)
So, does this mean that you have to wait until 7 or 10 years are up to start applying for credit? Absolutely not. In fact, some creditors and lenders will approve you for a credit card, mortgage, personal loan, or other debt products in as little as two years from the date the bankruptcy was finalized. But keep in mind that you may be hit with exorbitant interest rates since you pose an elevated risk to the lender or creditor.
Consequently, you should work diligently to repair your credit so the bankruptcy won’t be such a sore spot for lenders once you’re ready to start using debt products again. You’ll also position yourself to qualify for more competitive interest rates. More on that shortly.
How to Remove a Bankruptcy From Your Credit Report
Is it really possible to remove a bankruptcy from your credit report? And if so, will you have to pay a credit repair company or attorney thousands of dollars to do so?
Not necessarily. It depends on how much time has passed since the initial reporting date and if the information listed in your credit report is accurate.
Lapsed Reporting Timeline
Is the bankruptcy still lingering on your credit report although it should have been removed by now? You can file a dispute with all the three credit bureaus, Equifax, Experian, and TransUnion. Because the reporting timeline has lapsed, they should have no problem removing the entry from your credit report.
Verification of the Bankruptcy
Under the Fair Credit Reporting Act, you have a right to dispute entries in your credit report that appear to be inaccurate or untimely. But what the credit bureaus don’t tell you is that you can also request that an entry be removed from your credit report on the grounds that it wasn’t verified beforehand.
To use this loophole, reach out to the credit bureaus in writing to inquire about the verification process they used to validate the bankruptcy. It’s highly likely that they’ll give a vague response communicating that they performed their due diligence, but you’ll want to take it a step further by reaching out to the court and asking if they actually verified the bankruptcy. And in the event that they weren’t honest with you, provide written proof to the credit bureaus to have the entry removed.
Still no luck? Or would you prefer to let the professionals do the hard work for you? Consider soliciting the assistance of a reputable credit repair company that’s experienced in handling bankruptcies, charge offs, collections, public records, and late payments for consumers.
You’ll have to invest some cash to get this done, but it beats having to settle for exorbitant interest rates or working for several years to repair your credit.
How a Bankruptcy Impacts Your Credit Score
Until the bankruptcy is removed from your credit report, it may have a negative impact on your credit score. However, the extent of the impact heavily depends on the other information present in your credit report and how much time has elapsed since the bankruptcy first appeared on your credit report.
On average, you can expect your FICO score to drop by 130 to 150 points once a bankruptcy appears on your credit report. But the impact could be even more drastic if your credit score was good or excellent beforehand. In fact, this could mean a decrease of 200 or more points.
The good news is that as time passes, your score will start to rebound, particularly if you take the proper actions to start repairing your credit.
Tactics to Repair Your Credit After Bankruptcy
Bankruptcy is not the end of the world, and you can take certain actions to start repairing your credit.
Reassess your spending habits.
If you don’t already have a budget or spending plan, now’s the time to sit down and draft one up. You want to repeat history from repeating itself so you won’t find yourself in another mountain of debt and facing bankruptcy. And one of the best ways to do that is by following a budget so you won’t spend more than you earn, and you’ll be able to save money. Don’t quite know how to create a budget? Check out this guide to help you get started.
Make timely payments on your debts.
Payment history accounts for 35 percent of your credit score, and just one 30-day late payment could tank your score by as much as 110 points. (The higher the credit score, the greater the impact).
To avoid more negative marks from not paying on-time, consider setting up automatic electronic payments on your accounts.
Stop using debt.
Your credit score will continue to suffer if you rack up more debt since amounts owed, particularly on revolving credit, which accounts for 30 percent of your credit score. So you want to avoid debt at all costs. Freeze your credit cards, bury them in the backyard, or do whatever it takes to stop swiping. And the same rule applies for loan products. While they won’t impact your debt utilization ratio, you could still find yourself overextended and right back at square one.
Is debt a means of survival? If so, you need to take a step back and par down your expenses so you’re living below your means and building a cushion at the same time.
Refrain from applying for additional credit.
Each time you apply for credit, a hard inquiry appears on your credit report. They account for three to five points and sit for 24 months. And since you’re not too far removed from bankruptcy, it’s not worth it to test your luck on debt products you really don’t need only to get denied and ding your credit score.
The Bottom Line
Depending on the type of bankruptcy you file, it could stay on your credit report for seven or ten years. And while it can be removed beforehand, you’ll need to do some serious legwork to make that happen. But in the meantime, there are ways to start repairing your credit and getting your finances back on track.