Whether or not to file for bankruptcy is a complex decision, and many factors influence whether it is a good idea for you. One area that many people ask questions about when filing for bankruptcy is credit scores. People are not just concerned about how bankruptcy will impact their credit score, but also if they will be able to rebuild their credit score and various other questions. The following will outline some of the most important issues everyone should consider when deciding whether or not to file for bankruptcy.

Many Myths Persist About Bankruptcy and Credit Scores

One of the biggest challenges in understanding how bankruptcy will impact your credit score is that many myths persist about the relationship between the two. Consider the following myths:

• You Will Have a Better Credit Rating After Filing for Bankruptcy if You do Not Have Negative Information on Your Credit Report. In actuality, having a good payment history and the absence of any negative credit-related details does not do much to minimize the impact of bankruptcy on your credit score. 

• All Bankruptcy Details Will Remain on Your Credit Report for 10 Years. The truth is that only the public record for a Chapter 7 bankruptcy will stay on your credit report for 10 years. Most other bankruptcy-related details will remain on the report for only seven years.

• You Will Have Poor Credit as Long as Details About the Bankruptcy Remain on Your Credit Report. The truth is that through proper credit management, a person can rebuild credit back up more quickly than when this information vanishes.

• Bankruptcy Will Erase All Debts From Your Credit Report. Even though bankruptcy will help you pay off past debts, information about these accounts will not vanish from your credit report. 
• It is Impossible to Obtain a Credit Card After Bankruptcy. Credit cards are one of the best ways to build credit. This remains true even if you are rebuilding your credit after filing for bankruptcy. As you begin rebuilding your credit, you should make sure that details about this card are appropriately listed on your credit report. 

How Bankruptcy Impacts Your Credit Score

You should appreciate several factors about how bankruptcy will likely impact your credit score:

• Immediately after filing for bankruptcy, you will see a dip in your credit score. The exact degree that your score will decrease varies. Based on data provided by FICO, bankruptcy can make a good credit score decreased by 200 points or more. A less stellar score will be less sharply impacted by filing for bankruptcy.
• After filing for bankruptcy, details about the bankruptcy will be listed on your credit score and will impact your credit for some time. This is because a Chapter 7 public record stays on your credit report for around 10 years. Other bankruptcies like Chapter 13 will stay on your report for seven years.
• Bankruptcy details will be considered on your credit score for as long as the bankruptcy appears on your credit report. FICO estimates that it would take approximately five years for a person with a 680 credit score to return to this score after bankruptcy.

Strategies for Handling Your Credit Report After Bankruptcy

It is easy to end up feeling like an outcast after bankruptcy in the eyes of credit card issuers and other credit-reliant institutes. Through proper debt management, however, you can prove yourself trustworthy again. Your main goal should be to build a good credit score again. Some of the strategies that you should follow to reach this point include:

• Begin by assessing your situation. The best way to gain an understanding of your credit situation is to examine free annual credit reports. Your credit score will be calculated based on the information found in your credit report. If you notice any discrepancies or errors, you should make sure to promptly report them. 

• Keep a close eye on your credit score. There are several ways to obtain a free credit score. You should make sure to track this number frequently as well as to look at the same agency score each time. 

• Make sure the right accounts are reported. After your debts are discharged, you should review credit reports to make sure that your accounts are now listed as either “discharged” or “included in bankruptcy.”
• Use a secured card to rebuild your credit score. After bankruptcy, you likely want to try using a secured credit card. Making all of your credits on the secured card in full and on time is one of the best ways to slowly begin to improve your credit.

Know What Credit Report Errors are Common

It is one thing to say that you should look out for various errors on your credit report, but it is much more helpful to tell you what the most common types of details that you can find on your credit report are. Some of the errors for which you should remain observant include:

• Discharged debts not listed as discharged in bankruptcy and balances due not listed as $0.00. Every debt that you discharged through bankruptcy should be properly listed. While you might think that this is a silly error because having these debts discharged is the reason you filed for bankruptcy, it is a surprisingly common occurrence. 

• Repeated “hard pull” credit inquiries by former creditors. After a debt is discharged in bankruptcy, your relationship with any creditors you once owed is now concluded. As a result, these creditors do not have a right to be pulling your credit on a routine basis. In many cases, however, creditors simply forget to stop checking.

• Charge offs reported after the filing of bankruptcy or after discharge. If an account is listed as “charged off” on your credit report, this reflects negatively on your credit. Despite this, there are various situations when a creditor can charge off an account including after the receipt of a bankruptcy discharge. Even though this is illegal, it is a surprisingly common practice.

• Secured creditors still reporting you owe them. If you are navigating the Chapter 13 bankruptcy process, this is a more common error for which you should remain watchful. For example, imagine that you surrendered a $28,000 vehicle to a creditor and owed $75,000. This $47,00 is now unsecured debt and will be paid following your repayment plan. After Chapter 13 repayment has concluded, you will not still owe this amount. Despite this, however, creditors sometimes still report to the credit bureau that people owe this amount. Once again this is an illegal pattern by creditors, but creditors often do it to try to make even more money.

• Spouse is reported as having filed for bankruptcy when he or she did not. If a spouse files for bankruptcy and the other spouse does not, joint debts will be listed as “included in bankruptcy” on the creditor spouse of the report that did not file for bankruptcy. It is not permissible, however, to report that the non-filing spouse filed for bankruptcy in the “public records” section of the non-filing spouse. 
• Reaffirmed accounts misreported. Reaffirmation occurs when you had the opportunity to discharge an account in bankruptcy, but chose not to do so. Accounts of this nature should be listed as “reaffirmed” rather than discharged in bankruptcy. Additionally, if an account has been partially reaffirmed, there must be a new account opened with a new account number and the reaffirmed amount must be listed on your credit report. The non-reaffirmed amount, however, must be reported as discharged in bankruptcy with a $0.00 balance due. 

You Will be Able to Buy Houses and Cars Again

While it is easy to get discouraged immediately after debts are discharged, you should remember that with the appropriate financial planning it is impossible to buy houses and cars again. By beginning slowly, you can once again one day achieve various credit-related goals. Even if you qualify for a mortgage within two days, however, it is a good idea to wait several years after bankruptcy to obtain a mortgage. This way you can make sure that you obtain the most favorable terms and the best interest rate possible. 

Even though it sometimes does not seem like it, small interest rate differences can end up having a substantial impact on your monthly payment and the total cost of your home. Many people can achieve tens of thousands in dollars by practicing patience and obtaining a slightly lower interest rate during the home purchase process. 

Speak with an Experienced Bankruptcy Attorney

Hopefully, armed with this new knowledge about credit reports and bankruptcy, you feel better prepared for what lies ahead. If you have any additional questions about the relationship between bankruptcy and your credit score, however, it can help to speak with an experienced attorney. Contact attorney Melanie Tavare today to schedule a free case evaluation.