A bankruptcy is reported on your credit report as a public record, and there is no doubt that your scores will drop anywhere from 100-300 points when it first hits, depending on how many points you still have to lose in your payment history factor. Keep in mind, by the time you have filed bankruptcy your scores have already taken a serious hit from the delinquent accounts. That's the bad news. The good news is that you can start rebuilding immediately.

How Long Will A Bankruptcy Remain On Your Credit Report?

Section 605 of the Fair Credit reporting Act states that bankruptcies can remain on a credit report for up to 10 years. Here's the language:

605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c]

(1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years.

That legal language states that no bankruptcy can be reported for longer than 10 years; however, all three credit bureaus report as follows:  Chapter 7 bankruptcies for 10 years from the date of the filing, and Chapter 13 bankruptcies for 7 years, also from the date of filing.

That does not mean that you have to wait 7-10 years to seek removal. I've said it before-to my knowledge there is no language in the law that states items MUST be reported for a certain period of time, only that they CAN be. 

Steps For Recovering & Rebuilding Credit After Bankruptcy

FACT:  I have reviewed more than 15,000 credit-challenged cases and have NEVER seen a single bankruptcy reported accurately

Very often, individuals suffer an emotional surrender when they resort to bankruptcy. Frequently they just abandon concerns regarding their credit reports and scores, certain that they face a long and painful road back.

This, absolutely, does not have to be the case. You can embark on your path to recovery from bankruptcy immediately after filing. Doing so will help you emerge from bankruptcy stronger and faster. It will also give you a huge emotional boost because you will feel proactive as opposed to resigned.

TIP ONE: Pre-Bankruptcy. As soon as you have decided to file bankruptcy, pull your credit reports and scores. You should clean up any inaccurate or outdated derogatory information before the file goes to bankruptcy. Specifically, you want to validate all delinquency dates on the accounts you will be including-specifically collection accounts. If the 7-Year Reporting Period is around the corner or has already passed, you do not want to include that account in the bankruptcy filing. It will only obligate you to either pay it through a Chapter 13, or may extend the overall reporting period of that account on your credit reports. 

If you are proactive in cleaning up your credit reports prior to filing for bankruptcy, it will lessen the score penalty when the bankruptcy hits. I've seen many credit scores in the mid to high 600s within six months to a year after a bankruptcy has been filed and that is because the rest of the credit was strong. Start as far in advance as you possibly can. Don't make the mistake of assuming that the bankruptcy will take care of everything in the file; it won't.

TIP TWO:  Bankruptcy Re-List. Don't rely on your attorney to clean up the mess. It's not their job. The strongest tool you have to rebuild after a bankruptcy is through a bankruptcy re-list.

This is a very simple, mission-critical process. Once your bankruptcy has been filed, a bankruptcy re-list requires that you go line by line through your credit report to make sure that all items are reported as "included in bankruptcy," listed with a $0 balance. This is very important because it draws a line around the disaster. The credit scoring system has been programmed to understand that there is a containment plan in place and that the items listed in the bankruptcy have been dealt with.

The credit score penalty for a bankruptcy supersedes all other ratings on each account included.  So if the accounts included are not showing as included, you will be receiving multiple penalties where you should be receiving only one big penalty. 

Plus, if accounts are still showing as open, in collection with a balance, collection agencies will continue to try and collect; making your life miserable.

I have seen hundreds of instances in which a bankruptcy re-list has improved consumer credit scores by 50 or more points instantly. If you do not have the energy to conduct the re-list on your own, hire a professional credit repair company to act on your behalf.  But this is one step you cannot overlook.

TIP THREE: Get a Secured Credit Card. Do not fall prey to scams. There are many creditors out there who focus specifically on people who have just been through bankruptcy. They see them as easy targets because they know consumers automatically assume they will not be able to get any credit. Stick to a safe plan and apply for a secured credit card within 4-6 months. Then, apply for another secured card within 2-3 months after that. There are specific rules on how to manage credit cards that I cover in detail in my book, The Big Score - Getting It & Keeping It.

TIP FOUR:  Own It. It's very important that you take full ownership of your long-term credit situation. The court and the lawyers will get you through the bankruptcy, but that's all they will do for you. They will do nothing for your credit recovery, no matter what your lawyer tells you. You need to manage your credit perfectly to get the attention of the scoring system. And that means being vigilant and being consistent. Pull your credit reports every 4-6 months. Re-establish credit steadily, pay on time, keep balances low, and watch your credit for that 80% chance of error that has nothing to do with you. Use the knowledge you have gained from this book.

In Conclusion

The decision to file for bankruptcy is an extremely personal one. The decision requires weighing many conditions; both financial and personal. What I have tried to do in this article, and in my book, is to show you some reasonable strategies to recover should bankruptcy be your chosen debt relief option.

Click here to read about Linda Ferrari's new book, The Big Score - Getting It & Keeping It.  A must have for every professional.

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