Credit Debt

How Do I Remove A Bankruptcy From My Credit Report?

Bankruptcy is a legal process that helps people who have become burdened by their debt. Bankruptcy may be beneficial for people that have recently lost a job or have tremendous medical debt. Eligible individuals can file for bankruptcy to get a fresh start with their finances. But is it possible to remove bankruptcy from your credit report? 

Keep reading to learn more about the bankruptcy process and how they affect your credit reports. 

What Are the Different Types of Bankruptcy?

There are six types of bankruptcy. However, Chapter 7 and Chapter 13 are the most common forms. These types of bankruptcies are available to individual borrowers and businesses. The type of bankruptcy you get will determine how it appears on your credit report. 

Before you go ahead and file for bankruptcy, you must complete an individual or group counseling course offered by an approved credit counseling agency. The course must be successfully finished within 180 days before filing for Chapter 7 or Chapter 13 bankruptcy. 

Chapter 7 Bankruptcy 

Chapter 7 bankruptcy is also known as liquidation bankruptcy. If a person files for this type of bankruptcy, they opt to completely erase all of their unsecured debt. If you struggle to pay back a car loan, then Chapter 7 could help you reset your finances. 

The United States Trustee will appoint a court trustee to supervise the sale of your assets. The court trustee will use the proceeds to pay off your lenders. Certain assets may be exempt, such as motor vehicles or necessary household goods. 

Your disposable monthly income must be lower than the median income for same-sized households in your state to file for Chapter 7 bankruptcy. You may not file for Chapter 7 bankruptcy if you have previously filed in the last eight years. 

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy does not free you entirely of debt, but it can help make repayment easier. If you have both secured and unsecured debt, filing Chapter 13 could help you get the unsecured debt discharged. This means your credit card debt can be forgiven while you focus on repaying a costly car loan. Filing for Chapter 13 bankruptcy helps you repay debts within three to five years. 

Filing for Chapter 13 bankruptcy is possible if you have sufficient income to make monthly payments to creditors. However, there is a maximum amount of debt you can have. Unsecured debt must be less than $465,275, and secured debt must be less than $1,395,875. Debt limits change every three years. The Judicial Conference of the United States updated filing limits in March 2022.  

How Does Filing for Bankruptcy Affect My Credit Score?

If you successfully file for bankruptcy, your credit score will be negatively affected. The low score may shock you when you request your free credit report after filing for bankruptcy. Bankruptcy can completely overtake your credit reports.

Declaring bankruptcy means you were unable to handle your finances. Your lending options may be severely limited in the future. If you qualify for a new line of credit or a loan, the repayment terms may be less than ideal. 

Individuals with a bankruptcy on credit reports may not get sufficient funding for high-cost expenses. If you need a couple thousand dollars for home repairs, you may look into loans like Zocaloans. But getting a lot of funding is almost impossible with a low credit score. 

The interest rate you receive with loans depends almost entirely on your credit score. The major credit bureaus collect data on your financial history that determines the calculation of your credit score. One of the most critical factors for credit scores is payment history. Bankruptcy tells lenders that you struggled to repay debts. This can result in high-interest rates that offset the lending risk. 

The lower a credit score is, the less time you may receive for repayment. Most financial institutions extend loan offers with short repayment lengths to people with low credit. This lowers the lending risk because borrowed money is repaid sooner. Extended repayment terms are a benefit of high credit. 

One of the best ways to boost your credit score after filing for bankruptcy is to create a budget plan. Budgeting helps you take charge of your finances and save money. A budget plan can help ensure you have enough money to pay your bills at the end of the month. Long gone are the days of tracking expenses on paper. There are several helpful budgeting apps to use, such as Mvelopes or YNAB

How Long Does Bankruptcy Remain on a Credit Report?

After you file for bankruptcy, you may wonder if it’s possible to remove bankruptcy from your credit report. The good news is that it’s possible to get a bankruptcy removed from a credit report early in time! 

A Chapter 7 bankruptcy will stay on a credit report and negatively impact your credit score for ten years from the filing date. A Chapter 13 bankruptcy will remain on your record for seven years. The Fair Credit Reporting Act (FCRA) sets these timelines as the maximum amount of time that a bankruptcy can remain on a person’s credit report. 

Understanding Bankruptcy and the Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a feral law passed in 1970. The FCRA helps protect consumer information in consumer credit bureau files. This law affects how credit reporting agencies collect and use data in consumer reports, such as credit reports. 

The FCRA helps consumers adjust the information on their credit reports. The three credit bureaus collect all types of information from lenders, but you can take action to correct a credit report without going crazy! For example, you can file a credit dispute letter if you find inaccurate information on your credit report. The error will be removed and will not hinder your credit score. 

Lenders ascertain your creditworthiness by looking at your credit report. If the information on a credit report negatively impacts an approval decision for a loan, you have the right to know. The FCRA gives you the right to access a file disclosure every twelve months from each national credit bureau. A file disclosure is all the information a consumer reporting agency has on you. 

If you do not want lenders to view your credit history, the FCRA allows you to put a security freeze on your credit report. This prevents potential lenders from looking at your credit report until you lift the freeze. With no credit check loans, same day approval is possible without a hard inquiry! If you do not want to remove the freeze on your credit report but want to apply for a loan, you can set up a one-time PIN to give to a specific lender. 

Can You Remove a Bankruptcy From Your Credit Report Early?

If you previously filed for bankruptcy, you may wonder if you can remove bankruptcy from your credit report early. Unfortunately, early removal of bankruptcy is not possible if a bankruptcy case is accurate. Only an incorrect bankruptcy entry can be removed by the three credit reporting companies.  

How Long After Bankruptcy Can I Apply for Loans or Get an Apartment?

Bankruptcy can disrupt your life in numerous ways. If you file for bankruptcy, you will have to endure a waiting period. Some lenders may not approve your application until your bankruptcy has been discharged. If you’re interested in applying for an apartment or loan after bankruptcy, expect to wait for a period after the filing date. 

Rent an Apartment

You may want to find another living space after you file for bankruptcy. A bankruptcy and low credit score on a credit report may not automatically disqualify you from getting approval for a rental unit. However, many property management companies may not view you favorably. If multiple people have applied for the same apartment, you will likely not get chosen over the competition. 

Applying for Loans

After a person files for bankruptcy, they may have to wait at least two years before they can apply for loans. After receiving a bankruptcy on your credit report, eligibility for loans depends on the type of loan you want, how long ago you filed for bankruptcy, and your current credit score. 

Unsecured Loans

Unsecured loans include credit cards, personal loans, and student loans. If there is a bankruptcy on your credit report, it’s still possible to qualify for unsecured loans. A lender will consider the amount of time that has passed since you filed for bankruptcy and your current credit score. If you have worked hard to improve your credit score, a lender may view you favorably. 

If your credit score is low when a lender conducts a credit check, you could still qualify for a credit limit or loan. However, your interest rates will likely be high, and you may not receive much money. 

Mortgage Loans

After filing for bankruptcy, you may have to wait a few years to apply for a traditional mortgage loan. This is because your credit score will likely be too low. Though it is possible to get approval for a mortgage loan despite a rocky credit history, your loan offers may be unaffordable. When the interest rate is too high, it’s easy for someone to fall behind on payments and worsen their credit scores. 

In Conclusion

You may want to remove bankruptcy from your credit, but unfortunately, you have to wait a few years for a clean credit report. The good news is that you do not have to wait to start rebuilding your credit score! A higher credit score can make it easier to qualify for funding and get favorable loan terms. 

References:

2022 Increases In Filing And Exemption Limits For Bankruptcy Cases
Types of Bankruptcies: Which One Is Right For You?
Can You Get a Loan After Bankruptcy?
How Does Filing Bankruptcy Affect Your Credit?
Understanding the Fair Credit Reporting Act