How to Remove a Bankruptcy from Your Credit Report

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Hundreds of thousands of people file for bankruptcy in the United States each year. Typically, these are individuals who are overwhelmed and burdened by high levels of debt and who may have few or no other options for overcoming their personal financial issues. 

Before individuals file for bankruptcy, they typically will exhaust all other options available to recover from their financial issues. For example, they commonly will attempt to pull equity out of their home to pay off debts, to consolidate credit cards, to live a modified lifestyle with lower expenses and more.

These and other efforts, however, are not always enough to help a person improve their financial standing. While bankruptcy can provide the financial relief that is needed, it can also damage your credit, and many people want to know how to remove a bankruptcy from a credit report.

How A Bankruptcy Damages Credit

It is important to note that there are two types of bankruptcy, and these are a Chapter 7 and a Chapter 13 bankruptcy. With a Chapter 7 bankruptcy, all of the debts that are included in the bankruptcy are forgiven, and repayment of the debts is not required. 

With a Chapter 13 bankruptcy, a debt repayment plan is created, although the full amount of debt may not be repaid to creditors. With both types of bankruptcy, all debt collection efforts will cease, and the individual will no longer feel the pressure associated with owing creditors money. 

However, the events leading up to the filing of bankruptcy generally will include numerous late payments on various types of accounts as well as collections accounts. These factors alone can damage a credit rating, and many people who file for bankruptcy will already have a lower credit rating before filing. In addition, bankruptcy is also viewed as a derogatory credit item, and it can result in credit scores dropping even lower.

When Bankruptcy Is Removed From The Report

Bankruptcy cannot be removed from a report through the individual’s effort. Instead, the filing will remain on the report for a specified number of years. For a Chapter 7 bankruptcy, the event will remain listed on the report for up to 10 years after it was originally filed. 

For a Chapter 13 bankruptcy, it will remain on the report for up to seven years. The bankruptcy event should automatically be removed from the report by the reporting bureaus at the end of this period of time, and the individual should not have to take any additional steps for the event to be removed.

The Impact Of Bankruptcy On A Credit Rating

Many people already have a very low credit rating by the time they file for bankruptcy. In fact, it is common for many who file for bankruptcy to have a score that is well below 600, and some may have had a low rating for many months leading up to the filing. 

In addition, the bankruptcy can further reduce credit scores, and some who file for bankruptcy may see their score drop below 550 or even 500 for a period of time immediately following the filing. There are many factors that will influence the credit rating, however, and individuals who have filed for bankruptcy recently may want to monitor their rating. 

Filing for bankruptcy typically is a turning point for an individual. While there may have been financial struggles leading up to the filing, the filing can ease their financial burdens and give them a fresh start. Therefore, after filing for bankruptcy, individuals can take steps to re-build their credit rating.

Steps to Take to Re-Build a Credit Rating

While it will be seven to 10 years before the bankruptcy event is removed from a credit report, this does not mean that credit scores will be low for this period of time. In fact, some who spend the years following the bankruptcy to re-build their credit may have a good rating within a few years after the filing. 

Using debt responsibly is the best way to re-build credit after filing for bankruptcy, and there are several ways to accomplish this. First, it is necessary to open an account that can be used for this purpose. Some will apply for a secured credit card, for example. A secured credit card is one that has a very low cash limit and that is secured by an initial deposit that the account holder makes. 

Essentially, the deposit is the available credit limit for a period of time, but payments and activity for this type of account may be listed on a credit report. This is only one type of account that is available to those who have recently filed for bankruptcy. For all accounts, it is important that the individual use debt responsibly and make every effort to pay balances off and to make payments on time.

Bankruptcy can be a damaging credit event, but it also can provide the individual with the fresh financial start that is needed. Re-establishing a great rating is possible even while the filing is showing on the credit report.

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