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Bankruptcy should be removed automatically from credit reports

Summary

The notation that you have filed a Chapter 13 or Chapter 7 bankruptcy should be deleted automatically from your credit reports after seven or 10 years — but you better check

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Question

Dear Opening Credits,
I have researched the information you discussed about Chapter 7 and Chapter 13. My question is when the time is up (seven or 10 years), is the bankruptcy taken off my credit reports automatically or do I have to contact the credit bureaus and ask them to remove it? — Evage

Answer

Dear Evage,
Because you’ve looked into the subject, you already know that Chapter 7 and 13 bankruptcies are different. In brief, a Chapter 7 bankruptcy allows people to discharge most debts, such as most credit card balances, collection accounts and unsecured loans. Use it and the bankruptcy notation will be listed in the public records section of your consumer credit reports for a total of 10 years from your filing date. A Chapter 13, on the other hand, is a court-supervised repayment plan. If you use it as a way to deal with your debts by paying some in full and possibly discharging a portion of the others, the notation will appear for seven years from the filing date.

In either case, all evidence of the bankruptcy should be purged from your credit reports without you having to do any additional work. The three credit reporting agencies (TransUnion, Experian and Equifax) are required by the Fair Credit Reporting Act to list only the data that is correct and timely. It is their responsibility to keep the reports accurate.

Do mistakes happen? Unfortunately, yes. And that’s where you, the consumer, come in. It’s important for everyone to check their files from the three credit reporting agencies at least on a yearly basis. The reports are free to access from AnnualCreditReport.com, and it only takes a few minutes to pull them up online.

Checking your reports in this way is safe and does not hurt your credit scores.

If you do see that a bankruptcy should have aged off, but is still appearing, just use the dispute process on one of the credit reporting agency’s websites. That agency will notify the other two. Credit reporting agencies have about 30 days to conduct an investigation after receiving a dispute request, but they don’t have to do much in a situation like this. Either the notation should have dropped off by a specific date or the clock hasn’t run out quite yet. However, if you had a circumstance where you paid off a collection account, but it’s still showing up as an outstanding debt, the investigation can be a little tricky. The collector could come back with an, “Oh no, she didn’t pay us” response, causing you to go through the dispute process again.

You may have to be persistent. Many consumers say credit report errors are tough to erase.

What you should also know is how long the bankruptcies impact a credit rating. Most people who file do so after their credit scores have already hit rock bottom; they’ve fallen behind on payments and their debt load is large. These are the two most significant factors affecting a FICO score, which is the most commonly used credit score. In the first 24 months after filing, your scores will continue to be poor no matter which type of bankruptcy you use, but you can make great strides after that. While the notation may remain for many more years, recent activity matters more than what happened long ago.

If you use a Chapter 7 bankruptcy, you may be able to get a credit card with a small credit line soon after the discharge. Make regular charges, but always pay the balance in full and on time. Do so and in two years your scores should lift considerably. Recovering from a Chapter 13 can be tougher, because you’ll need approval from the trustees handing your bankruptcy before getting another card. If you can get a card, use it the same way I just described. If you can’t and are repaying creditors that report to the credit reporting agencies, fantastic. As your debt decreases and evidence of your steady payment history is recorded, your scores should rise.

Essentially, focus on what you can do, which is to add excellent activity to your reports, rather than on what you can’t do, which is  make the bankruptcies fall off your reports any faster than the law allows.

See related:Your map through Chapter 7 and 13 bankruptcy

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