The Great Recession started in December 2007 and ended in June 2009. Though it officially lasted only 19 months, it decimated millions of consumers’ financial lives. There were more than 8 million jobs lost, and in 2008 alone more than 1 million Americans filed for bankruptcy. Those bankruptcies appeared on consumers’ credit reports and impacted their credit scores.
Now, more than seven years after the beginning of the Great Recession, some consumers who filed for bankruptcy may begin seeing changes to their credit reports.
There are different types of bankruptcy, but the most common are Chapter 7 and Chapter 13. Both types help consumers get a handle on their debt, but they each do it in a different way.
In a Chapter 13 bankruptcy, you must establish a repayment plan to pay back some of your debts. According to the Fair Credit Reporting Act (FCRA), a bankruptcy can remain on your credit report for as long as 10 years. If the bankruptcy is completed or discharged, it is generally removed after seven years. If you’re one of the millions of people who filed for Chapter 13 bankruptcy early in the Recession and whose debts were discharged, you may soon see the bankruptcy fall off your credit report.
A Chapter 7 bankruptcy, on the other hand, will only fall off your report after 10 years. In a Chapter 7 bankruptcy, there is no repayment plan and generally a majority of your debts are discharged as the bankruptcy is completed.
What to expect seven years after bankruptcy
While the public record of the bankruptcy may remain on your credit report for up to 10 years, the individual accounts included in bankruptcy remain on your credit report for less time—seven years from the original delinquency date that led to the bankruptcy status.
If one of these items does not fall off your credit report after the time allotted by law, you can file a dispute with one or more of the three nationwide credit reporting agencies (CRAs).
While a bankruptcy remains on your credit report, you may find it difficult to get approved for new credit. In fact, while a Chapter 13 bankruptcy is pending, you must first seek court approval before applying for new credit. If you are approved, you may find that you are required to pay higher interest rates and fees.
Steps to consider after bankruptcy
After bankruptcy, it’s important to maintain a solid credit history. You may also want to pull a copy of your credit report and ensure that the applicable debts reflect that they were included in your bankruptcy. Consumers are entitled to one free annual credit report from each of the three CRAs through AnnualCreditReport.com. Continually monitoring your credit report can be one good way to help ensure that negative information falls off on time and that your positive credit behavior is being reported to the CRAs.
While you are waiting for negative information to fall off your credit report, you might want to consider writing a personal statement explaining the bankruptcy or any late payments. While this statement won’t impact your credit score, it does give you an opportunity to explain your adverse circumstances.
Diane Moogalian is vice president of operations for Equifax Personal Information Solutions. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies.
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