How to Remove Bankruptcy from Your Credit Report

Sometimes people can be stuck in such a tough financial situation that they decide to file for bankruptcy. While bankruptcy can provide a fresh start, it comes with consequences like a lasting impact on your credit score, the possibility to liquidate assets, and more. Since you may see an impact on your credit score, this can leave you wondering how you can remove bankruptcy from your credit report.

Understanding Your Credit Score

Bankruptcy can have a huge negative impact on your credit score. You want to make sure you understand your credit score especially with how it relates to a bankruptcy. Typically your credit score is a number between 300 to 850. This score is used by lenders to better understand your creditworthiness. This score is calculated based on information found on your credit report. Your credit report has detailed information about your credit history like your credit usage, your credit limit, total accounts, and more.

There are three major credit bureaus which are Equifax, Experian, and Transunion. These credit bureaus are the ones that use your credit report to calculate your score. A part of the calculation includes which scoring model these credit bureaus use. There are two main scoring models which are VantageScore and the FICO scoring model. However, a majority of lenders use the FICO model!

What Factors Impact Your Score?

How these factors will impact your credit score also depends on the scoring model used. However, there are generally five main factors which are:

  • Payment History (35%)
  • Credit Usage (30%)
  • Length of Credit History (15%)
  • Hard Inquiries (10%)
  • Variety of Credit (10%)

What Category is Your Score?

Consumers can check their score for free through a variety of different means. Sometimes people choose to go directly through one of their financial institutions. Other times, people may use a third party app. Regardless, once you check your score you will see that it falls under a category based on the scoring model used. If you are looking at the FICO scoring model then:

  • Excellent: 800+
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

However, the VantageScore model is set up differently:

  • Excellent: 781+
  • Good: 661-780
  • Fair: 601-660
  • Poor: 500-600
  • Very Poor: 300-499

What Does it Mean to File for Bankruptcy?

You want to make sure you understand what a bankruptcy means for you! Bankruptcy is a legal procedure that involves a person or a business who can’t handle their repayment responsibilities. To start the process, a petition must be filed (usually by the person dealing with debt known as the debtor). The debtor’s assets will then be evaluated. These assets may play a role in how people are able to handle their debts. There are a variety of types of bankruptcies as well!

What are the Different Types of Bankruptcies

The different types of bankruptcies are referred to as chapters. There are a variety of chapters when it comes to bankruptcy! There is Chapter 7, Chapter 11, and Chapter 13, which are the most popular. However, there are other chapters which are Chapter 9, Chapter 12, and Chapter 15. These lesser used chapters are designed for more specific circumstances. Bankruptcy filing costs will vary and each type is designed to help people in a different way.

Chapter 7 Bankruptcy

Individuals that need to get rid of their unsecured debts tend to choose this option. Unsecured debts can include credit card debt, medical bills, and more. People may need to liquidate their property to repay a part or all of their unsecured debts with this type of bankruptcy. This option basically allows a person to sell or provide nonexempt assets in order to clear their debt. Nonexempt assets can include:

  • Family heirlooms
  • Second Homes
  • Cash
  • Stocks
  • Bonds

If a person doesn’t have any nonexempt assets then they may not end up having to repay a part of their debt. Non eligible assets include:

  • Household goods
  • Clothing
  • Tools used for a trade
  • A personal vehicle

The bankruptcy filing fee for a Chapter 7 Bankruptcy is $335. However, there can be additional fees that go into this option.

Chapter 11 Bankruptcy

This type of bankruptcy is a great option for businesses to consider. The goal of a Chapter 11 bankruptcy is to reorganize the business while remaining open in hopes of becoming profitable. A company can create a plan for profitability which can include cutting costs and increasing revenue. With this type of bankruptcy, if there are stockholders in the business, only preferred stockholders may receive payments. Common stockholders would not. The bankruptcy filing fee for a Chapter 11 bankruptcy is $1,717 but there can be additional fees as well.

Chapter 13 Bankruptcy

Sometimes people may make too much money to qualify for a Chapter 7 bankruptcy. However, those that make too much but still need a bankruptcy option can file a Chapter 13 bankruptcy. Also referred to as a wage earner’s plan, this type of bankruptcy gives both individuals and businesses that have consistent income a way to create workable debt repayment plans. Generally these plans will span over the course of 3 to 5 years. As a result of these repayment plans, individuals wouldn’t be required to liquidate any of their assets. The bankruptcy filing fee for a Chapter 13 bankruptcy is $310 but can have other fees as well (just like the other chapters).

Pros and Cons of Bankruptcy

Even though bankruptcy can sound great, it should only be used as a last resort. That’s because even though there are some nice pros that come along with it, the cons may be just enough to outweigh them.

Pros of Filing for Bankruptcy

Some of the biggest benefits of filing for bankruptcy include:

  • A stay will be placed on debts
  • Relief from dealing with creditors
  • Protection from legal action
  • Debts may be settled for less than you owe
  • You can still take on new credit while repaying debts
  • You can get a fresh start

While these sound like some promising benefits to a bankruptcy, there are some drawbacks that should make you rethink this option.

Cons of Filing for Bankruptcy

Filing for bankruptcy can come with some big drawbacks like:

  • You face losing valuable assets
  • Bankruptcies can be costly
  • Federal student loans are exempt from bankruptcy
  • You may still be responsible for debt
  • If you are in a joint account, the other party is still responsible
  • You could face criminal charges
  • It’s a lengthy process
  • You could face losing your business
  • You could face eviction
  • Difficulty renting
  • Potentially impact your job/career
  • Your bankruptcy will be on public record
  • You can expect to see a negative impact on your credit
  • There’s a waiting period to buy a home
  • Higher car insurance premiums
  • It will stay on your credit report for up to 10 years
  • It cannot be reversed

There are way more drawbacks than benefits when it comes to filing for bankruptcy. That is why this decision shouldn’t be made lightly and should be used as a last resort.

How to Remove Bankruptcy From Your Credit Report

Since a bankruptcy can mean bad news on your credit, you may want to know how to remove bankruptcy from your credit report. Consumers cannot do anything when it comes to getting rid of this item if it’s accurate. It will stay on your credit report for up to 10 years until it naturally falls off.

If the bankruptcy in question isn’t accurate then a person can choose to dispute it with one of the credit bureaus. The credit bureaus will then investigate and respond within generally 30 days. If shown to be inaccurate it will be removed from your credit report and the negative impact will fall off.

Other Ways to Improve Your Finances Besides Bankruptcy

While bankruptcy is a last resort, there are other ways that people can improve their financial situation. Popular ways are:

  • DIY Credit Repair
  • Help from a Credit Repair Company

DIY Credit Repair

Those that want to rebuild credit or just improve how they manage their finances can try credit repair on their own through different means like:

  • Improving Their Credit Management
  • Working on Paying Off Debts
  • Disputing Errors on Their Credit Report

Help from a Credit Repair Company

Some people turn to a credit repair company when trying to improve their finances. Credit repair companies handle the dispute process on your behalf. They would be the ones to analyze your credit report for any inaccurate items and dispute with the credit bureaus. Credit repair companies are not free and can generally cost between $19 to $149 a month.

Commonly Asked Questions

Many people have questions when it comes to their finances. Hopefully the questions below can provide some insight and answer questions you may have too!

What is the Fair Credit Reporting Act (FCRA)?

According to the FCRA, credit bureaus must report accurate items on your credit report. If you find an inaccurate item and dispute it, they must investigate and respond accordingly. The FCRA is a law that helps consumers ensure their credit profile is accurate!

What is the Most Popular Credit Bureau?

There are three major credit bureaus which are Equifax, Experian, and Transunion. Out of these 3 options there is not one credit bureau that is better than the other.

When Can You Get a Copy of Your Credit Report?

You can get a copy of your credit report at any point. However, you are only allowed a free one every year. If you try to request a free credit report early, you may see it cost up to $13.

What is a Bankruptcy Filing Date?

According to Legal Beagle, the bankruptcy filing date is the date that you file the petition for bankruptcy with the court.

Overall

Filing for bankruptcy can come along with some benefits like:

  • A stay will be placed on debts
  • Relief from dealing with creditors
  • Protection from legal action
  • Debts may be settled for less than you owe
  • You can still take on new credit while repaying debts
  • You can get a fresh start

However, there are also plenty of drawbacks to be aware of like:

  • You face losing valuable assets
  • Bankruptcies can be costly
  • Federal student loans are exempt from bankruptcy
  • You may still be responsible for debt
  • If you are in a joint account, the other party is still responsible
  • You could face criminal charges
  • It’s a lengthy process
  • You could face losing your business
  • You could face eviction
  • Difficulty renting
  • Potentially impact your job/career
  • Your bankruptcy will be on public record
  • You can expect to see a negative impact on your credit
  • There’s a waiting period to buy a home
  • Higher car insurance premiums
  • It will stay on your credit report for up to 10 years
  • It cannot be reversed

That’s why it is important to be aware of these factors when understanding bankruptcy and how it impacts your life. Many people still consider bankruptcy if they find that they can remove the lasting impact that it will have on their credit report for up to 10 years. Sadly, if the bankruptcy in question is accurate then it will just fall off your credit report naturally. If it is inaccurate then the item can be disputed and eventually removed! You want to think about your options before you make any lasting decisions.

Article References

https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/

https://www.myfico.com/credit-education/fico-scores-bridge

https://www.thebalance.com/factors-affecting-credit-score-960527

https://www.nerdwallet.com/article/finance/what-is-a-good-credit-score

https://www.investopedia.com/terms/b/bankruptcy.asp

https://www.creditkarma.com/advice/i/how-much-cost-filing-bankruptcy

https://www.debt.org/bankruptcy/chapter-11/

https://www.lendingtree.com/bankruptcy/pros-and-cons-of-filing-for-bankruptcy/

https://www.investopedia.com/how-much-does-it-cost-to-repair-my-credit-5077091

https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-a-copy-of-my-credit-reports-en-5/

https://legalbeagle.com/12723031-bankruptcy-filing-vs-discharge-date.html

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