Every year more than 1.5 million Americans file for bankruptcy for a variety of reasons. While bankruptcy has many negative effects, it does offer people with devastated finances a fresh start. While most bankruptcies remain on your credit reports for 7-10 years, there are several things you can do to start re-establishing your credit after filing.
The first step in managing your credit is to clear your credit reports of errors. Check that your credit reports from Trans Union, Equifax, and Experian have accurately recorded your pre-bankruptcy debts as "Included in BK." Under the Fair Credit Reporting Act, you have the right to dispute inaccuracies.
After clearing out any errors in your credit reports it is best to keep a regular eye on your finances and use your credit conservatively.
Keep your employment stable, be cautious with spending,
and pay all your bills on time. You may want to apply for
a secured credit card that can be used in moderation and paid off
each month. Secured credit cards use your savings account
as collateral for the credit limit and are easier to be approved
for than a standard credit card.
As early as 1-2 years after bankruptcy you may be able to receive a home loan. The Federal Housing Administration (FHA) and
Department of Veteran Affairs (VA) have specific guidelines
for accepting borrowers who have filed for bankruptcy. For
example, the FHA will insure mortgages to individuals who
have filed Chapter 7 liquidation bankruptcy two years after
the discharge if "the borrower has reestablished good credit
(or has chosen not to incur new credit obligations), and has
demonstrated an ability to manage financial affairs."
You may want to contact a U.S. Department of Housing and
Urban Development (HUD) approved housing counselor or local support program for advice and assistance with purchasing a
home. Unfair lenders can sometimes target people
recovering from bankruptcy so be sure to research you
r loan options, know your rights, and read the small print.
After 7 years, the accounts that were marked as "included in
BK" should be removed from your credit reports. The bankruptcy
record itself will be removed after 7-10 years depending on
the chapter that you filed. If your records are not removed by
the credit reporting agencies automatically, you can send a
letter of dispute to have the records taken off your report.
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What Affects Your Credit Score?
Wondering
when judgments and bankruptcies will no longer appear on your credit
reports? Check the dates on records in your credit report. Generally,
here's how long judgments and bankruptcies remain on a credit report:
BANKRUPTCY
Generally,
Chapter 7, 11 and 13 bankruptcies appear as public record items on your
credit report for up to 10 years after filing. Chapter 13 bankruptcy
records are sometimes taken off sooner, 7 years after filing, depending
on the credit reporting company’s policy. When you receive an Order of
Discharge in bankruptcy, your creditors should mark those accounts that
were discharged as "Included in Bankruptcy" and they will stay on your
report for up to 7 years.
Generally, if a delinquent account is charged-off, the charge-off record appears on your credit report for up to 7 years.
CLOSED ACCOUNTS
Generally,
negative or derogatory information about delinquent accounts remain on
your credit reports for up to 7 years. Positive closed accounts (without
late payments or other delinquencies) may appear for longer than 7
years.
Generally,
accounts sent to collections will be listed on your credit report for
up to 7 years, beginning 181 days from the most recent delinquent period
before the collection activity. A collection account’s status should
change to "paid collection" once you've paid off the entire amount. If
you settle with the collection agency for less, your credit report may
list the account as "settled for less than full balance."
INQUIRIES
When
a creditor or lender checks your credit in connection with an
application, you'll usually see a "hard inquiry" on your credit report.
Generally, these stay on your report for as long as two years, and may
lower your credit score slightly. When a creditor reviews the credit
report of an existing customer, or when you access your own data online,
a "soft inquiry" typically shows up on your credit report. Soft
inquiries don't lower your credit score or appear to businesses checking
your credit.
JUDGMENTS
GENERALLY,
MOST COURT JUDGMENTS, INCLUDING SMALL CLAIMS, CIVIL AND CHILD SUPPORT,
STAY ON YOUR CREDIT REPORTS FOR UP TO 7 YEARS FROM THE DATE THEY WERE
FILED.
LATE PAYMENTS
Generally, if you make a payment late, the delinquency could appear on your credit report for up to 7 years.
Under
federal law, city, county, state and federal tax liens could stay on
your report indefinitely. Generally, after the lien is paid, the record
of it stays on your credit reports for up to 7 years from the payment
date. Now that you know what affects your credit score, get your Credit Report & Score.
The Federal Fair Credit Reporting Act states
that negative items will stay on your credit report for seven years
from the first date of delinquency resulting in the charge-off.
Typically, a debt is charged off once it is delinquent for 120 to 180
days. The charge-off will remain on your credit report for seven
years. The Fair Credit Reporting Act states that negative items will
stay on your credit report for seven years from the first date of
delinquency resulting in the charge-off. Typically, a debt is charged
off once it is delinquent for 120 to 180 days. The original time frame
for a loan -- such as five years, in the case of a car loan -- has no
bearing on the length of time the delinquency will be reported in your
credit file.
One
positive factor in your favor is that by paying off the debt, even
though very late, potential lenders will be more willing to lend to you
in the future than if you still had an unpaid account.
However,
for purposes of credit reporting, the fact remains that you did allow
the account to get to the point of being charged off. Your credit report
is designed to show a history of how you have managed your credit
accounts, so the account will show up as a black mark until the
reporting period of seven years has expired. Just so you know, the
negative account will have less impact on your credit and score over
time and as you continue to pay other bills when they're due.
Dianne,
the statute of limitations clock is completely different from the
seven-year rule that credit reporting companies use. The statute of
limitations determines whether a debt is collectible in a legal
proceeding, such as a court suit or garnishment. The clock starts
running from the date of the last payment made on the original account.
The
statute of limitation laws are different in each state, so you will
need to check how the law in your state applies to your debt. Regardless
of how many different collection agencies have purchased your debt,
your state law is the sole determinant of when this clock starts or
stops. Under the laws in most states, the statute of limitations clock
resets with any payment made on the account. Other actions can affect
the clock in some states, so be sure you understand your state's law.
To
sum up, credit reporting laws pertain to how long an accurate negative
item can be reported on a person's credit report, and statute of
limitation laws apply to how long a debt can be legally collected using
the courts. In most states, a negative account can be reported on a
credit report for longer than it can legally be collected in court.
The
Fair Credit Reporting Act (FCRA) limits how long a credit reporting
agency can report negative items in your credit report. Items that are
not negative, but neutral or positive, can be reported indefinitely. (To learn more about credit reports, credit scores, and credit reporting agencies, see our Credit Reports & Credit Scores topic area.)
How Long Negative Information Can Be Reported
Here are the rules on how long negative information may be included in your credit reports:
Bankruptcies may
be reported for no more than ten years from the date you filed for
bankruptcy. If your case was dismissed (so you did not get an order
discharging your debts), the ten years starts from the date of the
dismissal.
Lawsuits
and judgments may be reported for up to seven years from the date a
lawsuit was filed and seven years from the date a judgment was entered
against you or until the governing statute of limitations has expired,
whichever is longer. Most statutes of limitation are shorter than seven
years, so seven years is the likely maximum time judgments or lawsuits
will show up in your credit report. (You can find the statutes of
limitations for most kinds of debts in Nolo’s Chart: Statutes of
Limitations in All 50 States.) And because you eliminate any statute of
limitations when you pay a judgment, paid judgments may be reported no
more than seven years after the date of the judgment.
Paid tax liens may be reported from the date of payment for up to seven years.
Most
criminal records, such as information about indictments or arrests, may
be reported for only seven years, or until the statute of limitations
has expired, whichever is longer. But records of criminal convictions
may be reported indefinitely.
Delinquent
accounts may be reported for seven years after the date of the last
scheduled payment before the account became delinquent. Even if you
later pay off the delinquent amount, the trade line for that account in
your credit report may show that you were previously delinquent. (For an
explanation of how a trade line works, see Trade lines: Why Accounts or Debts Can Appear Several Times on Credit Reports.)
For
example, if your payments for March and July 2010 were each one month
late, the report may continue to show (for seven years from the date
after each payment was due) that you were 30 days late twice in 2010,
even though the trade line for that account also shows your payments for
the rest of 2010 were made on time.
Accounts
charged off or sent to collection or any other similar action (such as a
repossession) may be reported for up to seven years plus 180 days from
the delinquency. (Learn more about what happens when your account is
charged-off or placed in collection.)This applies to accounts sent to
collection within the creditor company as well as those sent to a
collection agency.
Creditors
that report an account as charged off or placed for collection must
tell the reporting agency the month and year your delinquency
began—which means the month during which the first payment you missed
was due. The creditor must do this within 90 days of its reporting of
the charge-off. The seven-year period begins 180 days after the
delinquency (the first missed payment) that led to the collection
activity or charge-off. The clock does not start ticking again if the
account is sold to another collection agency, you make a payment on it,
or you file a dispute with the credit reporting agency.
For
example, say you made your payment on time in December 2010, but missed
your January 2012 payment and did not make any more payments after
that. The creditor charged off your account nine months later, in
September 2012, and reported that to a credit reporting agency. Your
delinquency began in January 2012. So the credit reporting agency can
report the charge-off for seven years, plus 180 days, until about July
2019.
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