HOW LONG WILL A BANKRUPTCY STAY

ON MY CREDIT REPORT?

“While each jurisdiction may have various local rules that set forth procedures regarding bankruptcy filings, federal

law governs bankruptcy in the United States.”

PIOLETTI & PIOLETTI Bloomington, Illinois Bankruptcy Attorneys

What is Bankruptcy?

Congress is authorized to establish bankruptcy laws under the United States

Constitution; therefore, bankruptcy is governed by federal law. This provides a

uniform set of laws under which individuals and businesses obtain relief from

debt that they cannot pay. While each jurisdiction may have various local rules

that set forth procedures regarding bankruptcy filings, federal law governs

bankruptcy in the United States. This ensures that all debtors and creditors,

regardless of where a debtor resides, will be treated in the same manner.

Bankruptcy is designed to help individuals who cannot afford to pay their bills in

addition to their living expenses. Bankruptcy provides a “fresh start” for these

individuals so they can recover from a financial crisis. It does not matter why the

person cannot pay his or her bills. Bankruptcy law treats each person the same

way regardless of why that person is having debt problems. People file

bankruptcy for many reasons including but not limited to loss of income from

unemployment, divorce, or loss of a spouse, debt incurred due to a medical

emergency, or debt incurred because of a business failure.

In the court case of Local Loan Co. v. Hunt (1934), the United States Supreme

Court made it clear that the purpose of bankruptcy was to give debtors a “fresh

start” regardless of the reason why the debtor needed bankruptcy relief. The

court stated that bankruptcy “gives to the honest but unfortunate debtor…a new

opportunity in life and a clear field for future effort, unhampered by the pressure

and discouragement of preexisting debt.” The bankruptcy discharge does this for

the debtor by wiping out almost all, if not all, debt to allow the debtor to begin the

recovery and rebuilding process.

However, filing bankruptcy does have several consequences for the debtor.

While most consequences are positive such as the fresh start, a few of them may

be considered negative at first glance. A closer look at those “negative”

consequences will often reveal some positive aspects when you look at your

long-term financial goals. One such “negative” consequence is the affect

bankruptcy has on your credit score.

Bankruptcy and Your Credit Report

When you file bankruptcy, the bankruptcy filing will be reported on your credit

report for seven to ten years. Typically, a Chapter 13 case is reflected on a

credit report for seven years and a Chapter 7 case will remain on a credit report

for ten years. Even though filing bankruptcy usually results in a temporary drop

in your credit rating, most debtors see a rise in their credit rating within one to two

years after filing bankruptcy.

The belief that a debtor will never be able to qualify for credit or purchase

property with a loan is a common bankruptcy myth. Bankruptcy works to clean

up your credit history so that you can rebuild your good credit rating. By the time

most people file for bankruptcy relief, their credit rating is already damaged due

to negative marks on their credit report (i.e. late payments, over-the-balance

accounts, repossessions, foreclosures, etc.). These negative marks remain on

their credit report for many years causing their credit score to remain poor.

Upon completing a bankruptcy case, the debts that were discharged through

your bankruptcy case will be reflected on your credit report as being discharged

in bankruptcy with a zero balance. This works in your favor by lowering your

debt-to-income ratio, which is one of the factors used to calculate your credit

score. As you work to rebuild your credit, new positive marks will be added to

your credit report that will work to raise your credit score.

Bottom line – Your bankruptcy case will be reported on your credit report for

seven to ten years but it is far

less damaging in the long-term

than ignoring your debt problems.

If you continue to ignore your

debt problems, creditors will

begin taking legal action to collect

debts, which could result in the

loss of property. Debt collections

and lawsuits are also reported on

your credit report and the

information remains on your

credit report for several years.

This only works to lower your

credit score.

Bankruptcy helps those who

cannot afford to pay their debts;

however, each case is different.

You must take into account all of

the various factors involved in

your case before deciding how to proceed. Consulting with an experienced

bankruptcy attorney is the first step in deciding what course of action is best for

you. If you cannot pay your debts, we urge you to contact our office for a free

bankruptcy consultation. There are ways to improve your credit score after

bankruptcy but the first step is to discuss your options with an experienced

bankruptcy lawyer and decide on a course of action to resolve your debt

problems.

Tips for Rebuilding Credit After Bankruptcy

Time and the wise use of credit are the two best ways to improve your credit

score after bankruptcy. Below are several tips that can help you on the road to

financial well-being.

Make all future payments on time - Your payment history accounts for

35% of your credit score. Making all payments on time is vital for rebuilding

your credit score after bankruptcy.

Do not close old accounts – If you have old credit card accounts that

have a zero balance when you file bankruptcy, the creditor may choose to

leave the account open. Do not close the account. Your credit history (the

length of time you have had an open account) is also used as a factor to

calculate your credit score. This can work in your favor if you use the credit

account wisely to charge small amounts and make all payments on time.

Apply for a secured credit card – A secured credit card works just like a

regular credit card; however, you are required to make a deposit with the

company that is equal to your credit limit. Check to make sure that the

company reports your information to the credit reporting agencies before

you apply for the credit card. By making on-time payments on a secured

credit card, you can rebuild your credit score.

Keep revolving credit card balances low – The amount you owe on your

credit balances accounts for 30% of your overall credit score. As you

qualify for new credit, remember to keep the balances on each of those

accounts at or below 30% of your credit limit for that specific account to

avoid lowering your credit score.

Request copies of your credit

report – You are entitled to

receive a free copy of your

credit report every 12 months

from all three of the major credit

reporting agencies (Annual

Credit Report). You should

request your credit report after

your bankruptcy case is closed

to ensure that all debts

discharged through your

bankruptcy are correctly

reported. If there are mistakes,

contact the creditor and the

credit reporting agency.

Request copies of your credit

reports every 12 months and

correct any mistakes

immediately.

Contact Our Office for a Consultation with an Experienced Illinois Bankruptcy Attorney

Serving Our Clients with Sound Guidance and Unparalleled Dedication

The attorneys of Pioletti & Pioletti represent individuals who need experienced

bankruptcy lawyers. We help clients throughout McLean, Woodford, Tazewell,

and Peoria counties by providing compassionate, competent legal services.

Contact our office at 309-938-4838 to schedule your free bankruptcy

consultation.

When you need the assistance of an experienced bankruptcy attorney in Central

Illinois, call the knowledgeable and skilled attorneys of Pioletti & Pioletti. We are

dedicated to giving our clients exceptional service and support throughout the

bankruptcy process.

About Pioletti&Pioletti

Serving Our Clients with Sound Guidance and Unparalleled Dedication Pioletti&Pioletti is a full service law firm that represents individuals and businesses in a variety of areas of law including criminal defense, family law, bankruptcy, and estate planning. Pioletti&Pioletti has a long history in central Illinois. Our firm was founded in 1938 with a focus on estate planning, real estate, and business services. Today we are a versatile firm providing a group of services including criminal defense, family law, bankruptcy, and civil litigation representation. Our focus is on providing outstanding legal representation with unmatched personal service. We are available through email, 24 hours a day, 7 days a week. Pioletti&Pioletti 107 E. Eureka, Suite 1, Eureka IL 61530 Phone: +1 309-467-3213 Website: www.piolettilaw.com 121 N. Main St.,Bloomington IL 61701 Phone: +1 309-821-0246 Website: www.piolettilaw.com