Many people who are considering filing for bankruptcy are concerned about how it will impact their credit score. A bankruptcy can stay on your credit reports for up to 10 years; however, filing for bankruptcy can actually improve your credit score. Our Port St. Lucie bankruptcy attorneys explain how.
How bankruptcy appears on your credit reports
Bankruptcy is a type of public record that can be listed on your credit reports. As long as it’s listed on your reports, the bankruptcy may negatively impact your credit.
According to the Fair Credit Reporting Act, a Chapter 7 bankruptcy may stay on your reports for 10 years from the date you file. A discharged Chapter 13 bankruptcy typically stays on your reports for seven years from the date you file, but it could remain for up to 10 years if you don’t meet certain conditions. Both types have the same impact on your credit scores. However, it’s possible that a future lender could view one type more favorably than the other.
This type of public record may lower your scores significantly. If your credit was healthy before the bankruptcy, it may be hit harder than someone with poor credit. Ultimately, how a bankruptcy affects credit can vary, partially because of the different factors that make up each person’s credit.
How accounts appear on your credit reports
Before filing for bankruptcy, you probably had bills you struggled to keep up with — credit cards, medical debt and more.
When you include those accounts in a bankruptcy filing, they’ll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as “discharged” or “included in bankruptcy” with a zero balance. Even though you owe $0 for them, they’ll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application.
But here’s that good news we promised: Accounts included in a bankruptcy filing won’t be reported as “unpaid” or “past due” anymore, and you may feel relief without those financial burdens.
Your credit scores will eventually start rebounding with those positive effects. That’s assuming, of course, you use credit responsibly from here on out.
Credit recovery post-bankruptcy
After filing bankruptcy, you can work to build your credit again — but it won’t be instantaneous. It’s a marathon, not a sprint.
Start by making a list of the debts included in your bankruptcy, and check them on your credit reports. After they’re discharged, it may take about two months for the accounts to be updated on your reports. They should be labeled “included in bankruptcy”, “discharged” or similar language.
Check your reports every few months for errors. Make sure to check that the negative marks are removed in a timely fashion.
In the meantime, consider building credit. Only take out lines of credit you can afford, and pay back debt as agreed. After several years’ worth of responsible credit behavior, your credit scores can improve.
Wondering if bankruptcy is right for you?
The best way to know whether or not filing bankruptcy is right for you is to speak with an experienced and local bankruptcy attorney.
At Hoskins, Turco, Lloyd & Lloyd, our experienced bankruptcy attorneys understand how stressful filing for bankruptcy can be. If you have questions about filing for bankruptcy or regarding your current legal matter, don’t hesitate to contact our office. We provide free, no-obligation consultations so you can know the facts.