How long does bankruptcy stay on your credit report?
When you’re declared bankrupt, many emotions arise as a result of the short-run and long-run consequences. Sometimes, you might run into debts due to income instability, leading to permanent calls from debt collectors, where you might become tempted to file for bankruptcy. However, this isn’t a guarantee that you’ll make your records clean.
What is bankruptcy?
In simple terms, bankruptcy is a legal procedure where a declaration is made for an individual who isn’t in a position to meet his debt obligations. This declaration can ease pressure from your debt and give you some form of financial relief.
How long does bankruptcy stay on your credit report?
Legally, bankruptcy can stay on your credit report for up to 10years. However, in some cases, some credit reporting agencies can keep it on the credit report for a maximum of 5 years since you became bankrupt or 2 years after your bankruptcy ends. Generally, bankruptcy can last for 3 years, although the period can be extended due to certain circumstances.
Consequences of bankruptcy
In most cases, bankruptcy affects your employment, income, business, getting credit, and traveling overseas. Credit reports don’t show how exactly an individual will win the money, but rather a relationship with debts. Many people tend to confuse bad credit with no credit. Bad credit occurs when you borrow a certain amount of money and fail to pay it within the stipulated time. On the other hand, no credit is a situation whereby an individual shows financial responsibility by not borrowing money. You don’t necessarily need A+ credit so that investing in assets such as houses or cars becomes easy. Below are ways in which bankruptcy shows up on credit reports:
Chapter 7 bankruptcy
It’s the most popular type of bankruptcy. In chapter 7 bankruptcy, when an individual files for bankruptcy, he or she has to sell assets to get money for paying back debts. Filing Chapter 7 bankruptcy does away with unsecured debts such as medical bills and credit cards. However, one can only file chapter 7 bankruptcy upon a court of law deciding that an individual’s income is far way too low to clear a debt. This type of bankruptcy can stay on credit reports for a maximum of 10years.
Chapter 13 bankruptcy
On the other hand, if you file for chapter 13 bankruptcy, you are given a monthly payment plan for clearing up your debt in a stipulated period. This period is usually 3-5years. In this case, you will not be required to sell your assets provided that you strictly follow the repayment plan. Chapter 13 bankruptcy is not dangerous to one’s credit report compared to chapter 7 bankruptcy since your assets won’t be wiped away fully. This type of bankruptcy can stay on credit reports for a maximum of 7years.
Late payments
If you fail to make payments on your medical bill or credit card on the stipulated period, then it’s likely to appear in your credit report. It can stay on your credit report for even 7years even if you make the payments. However, different lenders have different ways of considering when a payment is deemed late. You should always make your payment on time before credit bureaus decide to lower your score.
Foreclosures
You might miss paying your mortgage installments due to loss of income. However, if this exceeds 120 days, your lender can decide to foreclosure your property. What the lender does is to get back the property and get you out completely. Apart from losing your home, this can reduce your credit score points with even 100 points. If the lender considers foreclosure, then it will appear on your credit report for a maximum of 7years.
Collections
In most cases, if you are late to pay your debts by 90-120 days, your details are likely to be taken to debt collectors for recovery. The lender sells your debt to a third party who calls you to inquire about your repayment plans. Some lenders even go to the extent of writing off old debts. This affects your credit report.
How can you build your credit report immediately after bankruptcy?
Filing for bankruptcy can be very much devastating leading to the destruction of one’s emotional well-being. However, you can build your credit report again slowly by slowly if you take the appropriate steps. Below are some top ways for building your credit report immediately after bankruptcy:
1. Check your credit report
It’s essential to check your credit reports regularly so that you can look for any inaccurate information that could be as a result of errors and can have severe negative effects. Sometimes, you might find a debt that you cleared still showing on your credit report as active. This can destroy your credit score if it exceeds the stipulated period for repayment. Always go through your credit report regularly and if you get some errors, make a quick step for immediate correction. You should know that bankruptcy only reorganizes your debt and doesn’t make your credit report clean. This negative information on your credit report can stay for 10 years or 7years if you file for chapter 7 bankruptcy and chapter 13 bankruptcy respectively. Any late payment that may be inaccurate will stay on your report for 7years and might also be sold to debt collectors. It’s therefore, essential to always check the accuracy of the information on your credit report.
2. Timely payment of bills
Most people don’t know that the late payment of bills can harm the credit reports. Whether you are paying for your electricity, water, telephone, video streaming, and other utilities, you should always ensure that you make timely payments. First, you will avoid penalties and other late fees. Secondly, your utility accounts will not be taken to debt collectors. These issues can destroy your credit report.
3. Payment of debts on time
One best way for building your credit report is by paying all your debts on time. In most cases, your payment history is the largest determinant of your credit score. Making your loan repayment and credit card installments on time will continue adding positive information to your report. This will further assist in creating a good credit score that will present goodwill and trust for your future creditors.
4. Save for emergencies
Most people get into debts that they can’t afford to pay due to a lack of savings. People will get loans to pay their utility bills and do other things such as business expansion or start-ups. To avoid the issues brought about by late payments, you should consider having an emergency savings fund that will automatically assist you in case your financial situation is not stable. This way, it means that even if you get a loan, it will be added to the already existing amount for various purposes.
5. Get credit builder loans
If you want to raise your credit score, you must prove that you have the ability to handle credit products. In this case, since it’s not easy to get unsecured loans, you should consider getting credit builder loans. These loans are offered by local community financial providers and even credit unions. When applying for a credit builder loan, you must ensure that you select the appropriate monthly payment installments that will not strain you much when trying to prove your ability to handle the facility.
6. Utilize auto pay for your fixed bill
To avoid late payments of bills, you can consider using the auto paying feature where you talk to your bank to automatically deduct your bills immediately after your account is credited with your salary. This is a good step since you will clear your bills immediately after you get your salary unlike where you get your salary first and start budgeting on what to do first. This sometimes makes you leave less money for paying your bills and thus affecting your credit report.
7. Get a co-signer
You might want to get a huge loan to finance an expensive project such as buy a piece of land, start a business, or buy a property. In this case, since your credit score can’t allow you to qualify for such a huge amount, you need to get someone who has a higher income and an impressively good credit score to act as a co-signer. If the loan that you are taking will last for quite some time, it means that your credit history will become a bit lengthy. However, you must ensure that you are capable of making repayments at the appropriate time. You should also make proper arrangements with your co-signer such that in case you are not capable of making the monthly payments, the co-signer assists you. Failure to meet your monthly obligations will even continue pooling your credit rating backward leading to further destruction of your credit report.
In conclusion, these are some of the top ways for building your credit report immediately after bankruptcy. Remember that your credit score will always represent your reputation to lenders and thus determining your eligibility for various credit products. In most cases, credit reporting companies don’t have a formula for calculating the impact of bankruptcy on your credit score.