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How Do Chapter 7 and 13 Bankruptcy Affect My Credit?

Published October 9, 2019 by Sasser Law Firm
How Long Will Chapter 7 and 13 Bankruptcy Affect My Credit?

It’s a question we hear often: How long does a Chapter 7 bankruptcy stay on a credit report?

A Chapter 7 bankruptcy will remain on your credit report for 10 years, but the real impact of a bankruptcy on your credit is not as simple or as harsh as one Q&A tells you. There are factors pertaining to your financial situation that need to be weighed and considered to determine whether bankruptcy is right for you and how a bankruptcy filing will affect your credit going forward.

A considered review of your financial situation and knowledgeable advice about your legal options are among the services that Sasser Law Firm provides people in the Triangle and across North Carolina. Contact us today to learn about your options for getting out of debt.

What You Need to Know About Credit Reports

We’ve all heard of credit reports. In truth, relatively few people ever check their credit scores or understand what they mean. Most of us know how consistently we’ve paid our bills and generally how much debt we have.

A credit report reflects a consumer’s history of establishing credit accounts (usually credit cards) and taking out loans and repaying the money borrowed. Lenders use credit reports to help them decide whether to loan you money and what interest rates they will charge. Others who may base a decision on your credit reports include insurance companies, landlords, and utility providers, including cable TV, internet and cell phone service providers.

Credit reporting companies, also known as credit bureaus or consumer reporting agencies, collect and store financial data about you that is submitted by creditors, such as lenders, credit card companies, and other financial companies.

The three national credit bureaus are Equifax, Experian and TransUnion, and there are regional companies, as well. Most people have more than one credit score.

Almost all credit bureaus use information on your credit report to assign you a three-digit FICO Score, which was created by the Fair Isaac Corporation. FICO scores estimate how likely you are to repay a loan on time, or what level of risk a creditor undertakes by loaning you money or extending you a line of credit.

FICO scores differ slightly among credit bureaus, but most have a 300-850 score range. The higher the score, the lower the risk to lenders. A good credit score is considered to be in the 670-739 score range. You may get credit or a loan with a fair score (580-669), but your interest rate will be higher.

Because a bad FICO score can cost you thousands of dollars over the life of a loan, you should check your credit reports regularly or sign up for alerts to be notified when your score changes, in case there are errors.

You can get a free credit report with more information than just your FICO score once a year from AnnualCreditReport.com. There are nominal fees for reports from individual credit bureaus.

How Does Bankruptcy Affect Your Credit Score?

There’s no point in avoiding the obvious: a bankruptcy significantly damages your credit score.

Depending on whether you file Chapter 7 personal liquidation bankruptcy or Chapter 13 debt readjustment bankruptcy, your credit score will fall by anywhere from 160 to 220 points. This could reduce a good FICO to within “fair” range or a fair score to “poor,” which makes it difficult to get a loan or credit at reasonable rates.

Bankruptcy is handled by the federal Bankruptcy Court, which makes it a public record that can be listed on your credit reports.

  • A Chapter 7 bankruptcy will stay on your credit reports for up to 10 years.
  • A Chapter 13 bankruptcy will stay on your credit reports for up to seven years.

As you may know, it takes three to five years to complete a Chapter 13 bankruptcy and less than a year to complete Chapter 7. Yet, the bankruptcy remains on your credit record as part of your financial history for years after the Court agrees that you have satisfied your debts.

The good news is that while a bankruptcy remains on your credit report, its impact on your credit rating diminishes over time if you establish a record of paying your bills on time and being creditworthy.

How to Rebuild Credit After Bankruptcy

Accounts included in a bankruptcy filing won’t be reported as “unpaid” or “past due” anymore on your credit reports. Assuming you pay new debts on time as you incur them, your credit rating will start to recover.

In the meantime, review your credit reports. Accounts that were “discharged” as part of your bankruptcy filing should be reported as “discharged” or “included in bankruptcy” on your credit reports. They should not show any money owed on them – a balance of $0.

If there are errors in a credit report, contact the credit bureau to have the report corrected.

You can also start to rebuild your credit standing by obtaining a new credit card. Gas cards and retail store cards are the easiest unsecured credit cards to get. You may have to resort to obtaining a secured credit card, which requires a deposit with the creditor. A third option is to have a family member or friend who has a good credit history apply for a card with you as a co-signer.

Rebuilding your credit is a gradual process. As you use a credit card and pay on time each month, other creditors will see your good financial habits on your credit report when it’s time to seek additional credit. It is best to avoid carrying a balance. If you must, it should not exceed 30% of the entire line of credit. You may review some tips to improve your credit score.

Re-establishing good credit after bankruptcy will be a years-long process made possible only if you manage your spending and pay all debts on time. You have to build a record of financial responsibility that will translate to a FICO score that indicates you are a good credit risk.

“Many companies promise to ‘repair’ or ‘fix’ your credit for an upfront fee,” the U.S. Consumer Protection Financial Bureau advises. “However, no one can remove negative information, such as late payments, from a credit report if it is accurate. You can only get your credit report fixed if it contains errors, and you can do that on your own at no cost.”

Contact An Experienced North Carolina Bankruptcy Attorney

If you are dealing with overwhelming debt, schedule a free consultation today with our compassionate consumer bankruptcy attorneys to discuss your options. At Sasser Law, you’ll work directly with a board-certified bankruptcy attorney. We pride ourselves on giving straightforward and honest legal advice.

The Sasser Law Firm serves individuals and businesses throughout North Carolina, including in Wake, Harnett, Johnston, Durham, Orange, Granville, Vance, Franklin, Warren, Nash, Lee, Chatham, and Moore counties.

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