If you’ve ever had a bankruptcy, your one overpowering thought, almost as soon as you’ve filed, is “how soon can I get this off my credit report?” That’s because a bankruptcy turns your entire world upside down – and not just your finances.
Obviously since employers, landlords, insurance companies, creditors and potential business partners review your credit report it’s really hard to have a full financial life with this blemish on your file. But with so many financial restrictions, your personal life and relationships are bound to be constricted as well.
Important Notes: Bankruptcy is serious business. In some cases, a good lawyer or specialist can mitigate the consequences of having a bankruptcy on your record. Just the same, this is an area where you need to be careful. Hiring the wrong person could not only cost you money but also make your situation worse.
It can be smart to talk to a lawyer but only after you understand a little about bankruptcy and credit repair. My suggestion? By all means, talk to a reputable firm but make sure you understand what they can and can’t do for you before hiring anyone.
How Long Will a Bankruptcy Appear On Your Credit Report?
The answer to this depends upon the type of bankruptcy that you filed. And there are two major forms of bankruptcy. Under a Chapter 13 proceeding, you arrange to repay some or all of your debt under the protection of the bankruptcy court, and generally with a term of not more than five years. Under a Chapter 7 bankruptcy, your debts will be immediately discharged. Big difference….right?
The credit world makes a distinction between the two as you might imagine. Under current regulations, a Chapter 13 bankruptcy will remain on your credit report for up to seven years after the date that you file for bankruptcy protection. A Chapter 7 bankruptcy will remain on your credit report for up to 10 years.
Obviously, you’ll be better off going with a Chapter 13 bankruptcy, rather than a Chapter 7 if your main goal is to re-establish your credit as quickly as possible.
Can You Get Credit Right After a Bankruptcy?
Back in the day, you couldn’t get credit right after filing for bankruptcy but that’s no longer the case. In fact, some credit card companies actually cater to people who have recently filed for bankruptcy. What they do is offer such people secured credit lines or unsecured lines for relatively small amounts, such as $500 or $1,000, and with very high interest rates and fees. Why would a credit company do business with someone as soon as they file? There are plenty of reasons.
First, they realize they have a captive audience with few options so they often charge extremely high fees – and get it. Next, they realize that borrowers who recently declared bankruptcy don’t have other debts because their slate is wiped clean. As a result, these borrowers might indeed be a good risk.
If you are in this situation, these companies offer you a quick way to start rebuilding your financial life. But just make sure not to take on more than you can handle Pilgrim.
The Effect that Bankruptcy Has on Getting a Job or a Home
Some credit card lenders may be willing to take a chance on extending you a small line of credit, but it will be virtually impossible to get a home mortgage – at least immediately.
Current regulations make it almost impossible to get a home loan unless at least two years have passed since the filing of a chapter 13 bankruptcy, or four years after the discharge of chapter 7. The good news is that you don’t have to wait the full 7 to 10 years.
But there are a few more bankruptcy speed bumps to deal with. For one, it may be really difficult to rent a place to live. Landlords are a skittish lot. If you have a bankruptcy on your record, you’re going to have to do some out-of-the-box thinking in order to convince a property owner to do business with you.
When it comes to employment, the situation is a little better, but not much. There are laws that are supposed to stop employers from discriminating against people who have a bankruptcy on their record but these regulations may be hard to enforce.
It’s on your record and the company you are interviewing for sees it. They may not hire you because of the black mark without admitting it and tell you they are hiring someone else for another reason. And if the position you are applying for involves financially sensitive information, your would-be boss can show you the door without thinking twice.
How To Fix A Bankruptcy
First, understand that just because a bankruptcy appears on your record, it doesn’t mean you have to sit there and take it. Each year, roughly 500,000 people file for bankruptcy and it’s possible that the credit bureaus assign a bankruptcy to you in error. Sometimes they simply misapply the filing or fail to remove the bankruptcy after the 7 to 10 years as they are required to do. Other times the bureaus associate newer accounts to an old bankruptcy filing – and that’s not OK. In all these cases, you have legal standing to get these mistakes taken off your record.
In fact, one major law firm that specializes in credit repair removed hundreds of thousands of bankruptcy-related errors from consumers’ credit reports in 2014 alone. To me, that’s proof that mistakes happen and people can do something about it.
Even if you have a bonafide bankruptcy on your file all is not lost. Remember that time is your friend. As the years pass your situation will continue to improve. For example, banks may be more willing to make loans to you five years after your bankruptcy, then they would be after six months. As well, landlords will be more willing to rent to you, you may be eligible for a home mortgage, and employers will be more forgiving of your bankruptcy.
That’s the good news. But this doesn’t change the fact that it’s probably going to be tough going for at least two or three years after you declare bankruptcy unless there is a mistake involved and you get it cleaned up.
Filing for bankruptcy is not a step that should ever be taken lightly. It might be enticing to think about getting out of all that accumulated debt, but think twice. If you go down this road you may find it extremely difficult to find work or housing anywhere, under any circumstances. How is that going to impact you and your family? Is it really worth it?