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  • Writer's pictureDaniel Rodriguez

How Long Does Chapter 7 Bankruptcy Stay on Your Record?

How Many Years Does a Chapter 7 Bankruptcy Stay on Your Credit Report? First, it’s important to distinguish between a bankruptcy case that is discharged and a bankruptcy case that is dismissed.  A discharge, which frees the debtor from his or her liability for dischargeable debts, is the goal in any bankruptcy case.  But, a case can also be dismissed, which means there was a problem with the case and the filer will not be relieved of his or her debt obligations.  A bankruptcy case can be dismissed for numerous reasons, including but not limited to fraud, noncompliance with requirements of the legal process, or failure to meet certain financial criteria. It’s important to understand that a bankruptcy case will appear on your credit report even if your case is ultimately dismissed.  If this is the case, the dismissal should be noted on the report, regardless of whether or not it was dismissed “with prejudice,” meaning the case cannot be refiled. The length of time a bankruptcy stays on your credit report is not determined by whether the case was dismissed or discharged; rather, it is determined by the type or “chapter” of bankruptcy under which you file.  Chapter 7 bankruptcies, though not appropriate for every situation, are favored by many people due to their speed and simplicity, concluding in as little as four to six months. This chapter of bankruptcy will be reported to each of the three major credit bureaus – Equifax, Experian, and TransUnion – for a period of 10 years or more. Many people panic when they hear this figure because they assume it means they will be unable to obtain any loans for a decade.  This is yet another harmful myth about bankruptcy that fails to take into account the true nuance of the matter.  In order to understand why we have to rewind. If you are considering filing for Chapter 7 bankruptcy, your credit is likely already in less-than-optimal condition.  When you file for Chapter 7 bankruptcy and your case is successfully discharged, it means that your debts will be discharged, or eliminated.  Once you are released from these burdensome financial liabilities, you will be much better able – perhaps more than you have been in many years – to effectively manage new debt if a lender issues you a loan. At this point, you may be worrying to yourself, “But I’ll never be able to get a loan when the lender sees my bankruptcy.”   Once again, this is not necessarily true.  Though it seems counter-intuitive and may come as a surprise, many lenders are fairly willing to work with a person who has recently come out of a Chapter 7 bankruptcy for two significant reasons:

  1. They know you have been released from most of your debts (though there are certain debts that are not typically dischargeable in Chapter 7 cases, including student loans, criminal restitution, and loans pertaining to alimony and child support).

  2. They know that you will not be able to obtain another Chapter 7 bankruptcy discharge for a period of at least eight years. In short, bankruptcy will remain on your record for up to a decade; but, that doesn’t mean it has to negatively affect your life for all or even much of that time.  On the contrary, filing for bankruptcy can be an ideal strategy for tackling bad credit head-on.  You could think of it a bit like the extraction of a rotten tooth: though it may cause some discomfort at first, it will help you to become much healthier in the long run.

Improving Your Credit Score After Chapter 7 Bankruptcy Your credit score is based on data gathered over months and years. Your credit score will shift. However, the movement is typically slow. It could take six months or a year of data to improve your credit score. Many factors influence your credit score. While weighted differently, the most significant factor is your payment history and the amount of debt you have. Other factors that carry less emphasis include the type of debt, the diversity of debt, and the age of your debt. Filing for bankruptcy will negatively impact your credit score. However, as stated above, Chapter 7 puts you in a position to start rebuilding your credit. There are some strategies you could employ to help speed up the process. Our experienced Chapter 7 lawyers are available to answer any question you might have.

Continue to Pay Your Bills While a vast majority of debt is dischargeable through bankruptcy, it does not eliminate all your debt. Secured debt will typically survive bankruptcy, especially if you want to keep the collateral. For example, you might have a car payment when you file for bankruptcy. Through a reaffirmation agreement, you could keep your vehicle and continue to make monthly payments. Most reaffirmations keep the terms of the original loan. If your monthly payment was $375 and you had an interest rate of 7%, the reaffirmation agreement will likely be the same. By signing the agreement and continuing to make timely payments, you will be able to positively impact your credit score. The court must approve reaffirmation agreements. Our bankruptcy attorneys will work with your lenders to obtain an agreement if it is in your best interests.

Secured Credit Cards It could be challenging to obtain a normal credit card after you file for bankruptcy. However, a viable and reasonable option is applying for a secured credit card from your bank or other lending institution. A secured credit card functions in the same manner as any other credit card. However, your credit limit is determined by a deposit your leave with the lender or bank. This way, the lender has collateral in case you default on your payments. In some ways, a secured credit card resembles a debit card that is linked directly to your checking account. However, there are substantial differences. First, you will be required to pay extra fees for the right to use a secured card. There could be an annual fee, administrative charges, and a high-interest rate. When you begin, you might find credit limit could be limited, perhaps only $500 to $600. There are positives to having a secured credit card. If you make your required payments, they will be reported to the various credit bureaus. When you use a debit card, it does not help increase your credit score. On the other hand, a secured card could be one of the first steps in improving your credit rating.

Other Types of Credit There are other opportunities to be approved for a line of credit. For example, you might consider purchasing a car if you do not have a car or are thinking about replacing an old one. It is not uncommon for car dealerships to market to individuals who just emerged from a Chapter 7 bankruptcy. You present less of a risk because your debt-to-income ratio should be positive and you are prohibited from filing another bankruptcy for eight years. You need to be realistic about the terms of such a deal. The lender will not be offering an attractive rate. However, if you are able to afford the terms, making a monthly car payment will improve your credit score. Another option is a retail credit card. Many department stores and other big chains offer store credit cards. While it used to be easier to qualify for these types of credit cards, they are still often easier to obtain than major credit cards. Additionally, some stores are still local and have in-house charge accounts.

Dispute Your Credit Report One reason some credit scores fail to improve is that delinquent accounts and defaults remain on the report. Sometimes it is necessary for you to take action. After you receive your discharge order, you should monitor your credit report to ensure your creditors accurately report the status of your accounts with the three credit bureaus. However, do not expect them to come off the week after the court’s order is entered – it could take six months to a year for your report to reflect the bankruptcy. Nonetheless, after six months have passed, you should order a credit report to see if it is accurate. Our experienced bankruptcy attorneys are available to assist you with reviewing and challenging your reports.

Be Patient Building good credit takes time. It probably took you years to reach the point where it became necessary to file for bankruptcy. While bankruptcy was designed to give you a fresh start, it does not fix all your problems overnight. In time, your discharged accounts will be reported. If you keep making monthly payments on your current bills, it will eventually begin to push your credit score up. It is important to properly budget and monitor your level of debt. Before a discharge is entered, a Chapter 7 debtor is required to take a financial education course. Our office will file a certification that you completed the course. However, you will gain valuable information and strategies to use to improve your credit and help avoid the need for filing again in the future.

California Chapter 7 Bankruptcy Lawyers Serving Sacramento, Folsom, and Roseville If you need help filing for Chapter 7 bankruptcy in Folsom, Sacramento, or Roseville, or even if you are simply wondering about whether bankruptcy might be right for you, we encourage you to contact the California Chapter 7 bankruptcy attorneys of The Bankruptcy Group for a free, friendly, and completely confidential legal consultation.  We can help to assess your financial situation, including your long-term goals for the future, in order to determine whether bankruptcy is a possible option for getting your debt under control.  Please do not hesitate to call our law offices at to talk about Chapter 7 bankruptcy today.

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