If you’re drowning in debt and you don’t have any way out, bankruptcy could be the only option that could save you and give your finances a fresh start. It’s an opportunity to wipe the slate clean and start over with the hopes that you’ll make smarter financial decisions this time around.
However, many people realize too late that filing for bankruptcy does not necessarily mean you’ll have a totally clean and blank slate. The bankruptcy will continue to appear in your credit report for several years, which will, in turn, affect your financial transactions.
Because of this, you might be wondering whether it is possible to remove bankruptcy from your credit report before the usual time frame. This article will answer these common questions related to getting a bankruptcy off your credit report.
How Long Will Bankruptcy Appear On Your Credit Report?
You probably have heard that the length of time your bankruptcy will stay on your credit report will depend on the type of bankruptcy you filed for. There are two types of bankruptcy filings in the United States.
The first one is Chapter 7 and the other one is Chapter 13. If you filed a Chapter 7 bankruptcy, what typically happens is that some of your property or possessions can be sold off or liquidated to allow you to pay for your debts, plus, some of your debts may also be discharged. When a debt is discharged, this means you don’t have to pay for it any longer.
After completing this bankruptcy process and your debts are discharged, this record will stay on your credit report for up to 10 years from the time of filing. The length of time it stays on a credit report is so long that many people wonder if you can remove a Chapter 7 from a credit report before 10 years.
On the other hand, a Chapter 13 bankruptcy is a process wherein you create a payment plan to pay all or some of your debts in 3 to 5 years. Once courts approve the payment plan, you will have to pay a fixed amount either monthly or biweekly on a regular basis. If you file a Chapter 13 bankruptcy, it will remain on your credit report for up to 7 years from the time you filed.
Can You Remove A Bankruptcy Early From Your Credit Report?
If you do a quick search over the internet, several articles state that it is possible to remove a bankruptcy from your credit report early. Because of this, people who have experienced a bankruptcy start having hopes that it is possible. However, many articles do not clarify that getting a bankruptcy off your credit report is only possible in very specific circumstances.
The reality is if you have filed from a bankruptcy and your debt was discharged, you cannot get it off early from your credit report just because you want it to be gone. Even if your credit score is very high, you often cannot do anything but to wait it out.
The simple answer to do this question is NO. If your bankruptcy was legitimate and you received a bankruptcy discharge, meaning you don’t have to pay your debts, then that means that it will have to take 7 to 10 years for your bankruptcy records to fall off from your credit report. Even if you have a dismissed bankruptcy, you cannot easily remove this from your credit report early.
When Is It Possible To Remove A Bankruptcy From Your Credit Report?
What about all of those people saying that they were able to remove a bankruptcy from their credit report early? Are they lying? These might be some of the questions floating around your mind right now. If they could do it, how come I can’t remove bankruptcy from my credit report early?
As mentioned in the earlier section, you can only remove a bankruptcy off your credit report in certain circumstances. When is this possible?
The only way you can get a bankruptcy off your credit report is if there are inaccuracies or errors on your credit report. When you were filing for bankruptcy or even after your debt was already discharged, it is not uncommon for you to feel overwhelmed and unfocused, Because of this, you may not have noticed slight mistakes in your credit report. These mistakes could be spelling mistakes, incorrect addresses and phone numbers, spelling of names, and even discharged debt that still show a balance.
If these errors exist, you can then move forward and dispute these incorrect entries. Here is the step by step process.
1. Carefully review your credit report and check for any mistakes, however minor they are.
2. When you find any of these inaccuracies, you can dispute the bankruptcy entry by sending a credit dispute letter to the credit bureau. You can check this sample letter from a legal firm on how to go about this step.
View the full sample letter at How to remove bankruptcy from credit report – sample letter
3. If the credit bureau is unable to verify the information, there is a chance that they will just remove it from your credit report. That is, of course, what you want to happen.
4. However, if the credit bureau is able to verify it, you may have to challenge them with who they verified the information. If they said they verified the information with the courts, you may have to send a letter to the court verifying if the credit bureau indeed did the verification. If the courts did, then that’s the end of the road for you. On the other hand, if the courts say that no verification took place, you can ask for a written proof and go back to the credit bureau to demand that they remove the bankruptcy.
The dispute process is not easy. It is a long and tedious process that’s why many people seek out credit repair companies to do this process for them. People who have used credit repair companies shared in online forums that these companies were able to remove bankruptcy entries in their credit report, while some say that these companies are nothing but a scam as they were not very helpful.
Another current challenge with this dispute process is that everything now is electronic, so it is not as difficult to verify public records nowadays as anyone can verify information in just a few minutes.
While the process above may have worked in the past when a lot of people were still going by paper files and documents, modern technology and systems used by the credit bureaus make it difficult to challenge or dispute entries in your credit report.
How A Bankruptcy Filing Affects Your Credit Score
When you file for bankruptcy, your credit score will drop. The range of the drop is usually 130 to 240 points. Typically, people who have a higher credit score of over 700 points lose more points. If you already have a poor credit score, the deduction of these points may not really affect you that much.
When you have a bankruptcy on your credit score, it can be difficult to get approval for new credit and get the best deals people with excellent credit scores enjoy. For example, if you are planning to get a cell phone plan with bad credit, you will not be eligible to get the best deals available that require no deposit or no upfront fees. If you have bad credit due to a bankruptcy, you may have to settle for a no credit check cell phone plan where you have to buy the device in full and prepay your usage.
Will Your Credit Score Stay Poor Until Your Bankruptcy Is Removed From Your Credit Report?
One common misconception is that your score will remain poor during the duration the bankruptcy is on your credit report. This is not true at all. In fact, you can start rebuilding your credit after your debt is discharged. According to bankruptcy experts, there is even a chance that your score will go above 700 after four to five years.
Can You Still Get A Loan Even With A Bankruptcy on Your Credit Report?
Many people think that just because they filed for bankruptcy, then this means that they will not be able to get a loan or a new line of credit. The truth is, there are many different companies and lenders that specialize in lending to people who just filed for bankruptcy or with bad credit.
Of course, you will find that the interest rates and the fees are high compared to when you still had a stellar credit score. That’s why it’s important to be cautious and to not be blinded by the unbelievable offers immediately after your bankruptcy discharge. Make sure that you read the fine print and clarify all the details before going for a loan or a credit card. You don’t want to end up in a more dreadful situation than you were in pre-bankruptcy.
So, what types of loans or credit are you still eligible for even after filing for bankruptcy? We listed down the credit options for you
Credit Cards
After a bankruptcy discharge, regular credit card companies may not consider you as a good risk, but you can still avail of secured credit cards that normally do not require any credit checks. After a Chapter 7 bankruptcy, you may have to wait until after the completion of your bankruptcy case before applying to make sure you’ll get approval. This will take about three (3) months. If you filed for a Chapter 13 bankruptcy, it may take 3 to 5 years before you can apply.
What is a secured credit card? Unlike regular credit cards, you will need to pay a deposit to get a secured credit card. The deposit will usually be equal to your credit limit. So, if your deposit is $1,000, then that is also the amount you can spend on the card.
You may be thinking:
What’s the use of getting a credit card if I have to deposit the same amount in cash? It’s because this is one way to rebuild your credit score. Unlike a prepaid card, a secured credit card reports your payments to credit bureaus.
When applying for a secured credit card, be wary of the high interest rates. Some credit card companies will attract you by giving offers like no annual fee without you realizing that the interest is double or triple than the other credit cards.
Another option is to find store credit cards that approve applications from people with bad credit. These store credit cards typically have low application requirements compared to bank credit cards.
Car Loan
To get a car loan, you have to complete your bankruptcy discharge first. If your case is still ongoing, it will be difficult to get an approval. You have to show proof of your bankruptcy discharge. After that, you can find auto loan lenders who are willing to give you a car loan even after bankruptcy. If you can afford to pay a down payment, this will increase your chance of getting approved.
However, it is advisable to wait for a few months before getting a car loan. Try to start rebuilding your credit first by using a secured credit card. This will open better deals for you compared to applying for a car loan immediately after a bankruptcy discharge. It is also wise to go for second-hand cars or other more affordable options when getting a car loan after bankruptcy.
Mortgage
If you are planning to buy a house, you don’t need to wait for 7 to 10 years before you can avail of a home loan. The usual waiting time to get an FHA loan or a VA loan is 12 months to 2 years from the discharge date, depending on your circumstances and what type of bankruptcy you filed.
For Fannie Mae, Freddie Mac, or Ginnie Mae, you may have to wait 2 years to 4 years before you can apply. Again, you have to start rebuilding your credit score to make sure you get a better chance of approval when applying for a mortgage.
How to Build Your Credit After Filing for Bankruptcy?
If you are one of those people who want to swear off credit altogether, this is actually a bad idea. You want to rebuild your credit score after bankruptcy even if you don’t have any immediate plans on making big purchases. This is because when you have a good credit score, it gives you access to better deals and savings. You don’t have to pay deposits or high-interest rates when getting necessary services like utilities and cell phone plans.
So, how can you rebuild credit without going under debt again? Here are some practical tips.
1. Don’t open new accounts all at once
After a bankruptcy discharge, it might surprise you that you’ll get a lot of credit card offers. Many of these offers are for secured credit cards with sky-high interest rates. Companies now consider you a better risk because you don’t have a lot of debts anymore. However, opening multiple new accounts at once could make it difficult for you to maintain regular payments and this could harm rather than help your credit score.
2. Don’t max out your credit limit
Only use up to 30% of your credit limit. Maxing out your limit every month will make it harder for you to keep up your payments.
3. Maintain On-time Payments
Religiously pay your bills on-time, every single time. A late payment can hurt your credit score further. A good idea is to use financial management apps like Mint or Personal Capital that have bill reminder features so you will not miss payments again.
Think Before You File
If you are just thinking of filing for bankruptcy and you are moving forward because you think that there are ways to bypass the 7 to 10-year time frame, then think again. There are no guarantees you can remove a bankruptcy early from your credit report, especially if it is a recent filing.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
