Bankruptcy Can Ease Financial Strain and Help Rebuild Your Credit Over Time

One of the most common questions people ask when considering bankruptcy is, “How will this affect my credit?” While filing for bankruptcy will negatively impact your credit report, if you’re already missing payments or have delinquent accounts, your credit is likely already suffering.

Filing for bankruptcy can eliminate the weight of overwhelming debt, freeing up funds for savings and essential expenses so you don’t have to rely on credit. The benefits of bankruptcy start immediately, relieving financial stress, and as time goes on, you’ll have the opportunity to rebuild and improve your credit score.

Remember: Nothing on your credit report is permanent.

Do You Qualify For Bankruptcy? 

Take the first steps and answer a few questions to make sure you qualify for bankruptcy.

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Bankruptcy and Your Credit Report

When you file for bankruptcy, it will be recorded in the public records section of your credit report, which also lists court judgments and creditor actions. The duration that bankruptcy remains on your credit report depends on the type of bankruptcy filed:

  • Chapter 13: Stays on your credit report for 7 years from the filing date.
  • Chapter 7: Remains on your credit report for 10 years from the filing date.

Once the reporting period ends, the bankruptcy will automatically be removed from the public records section of your credit report.

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Accounts and Creditors Involved in Bankruptcy

The accounts and creditors included in your bankruptcy will still appear on your credit report but will be marked as “Included in Bankruptcy.” Here’s what happens to those accounts:

  • Delinquent accounts are removed from your credit report 7 years after their original delinquency date (when the account first became overdue and was never current again).
  • Accounts included in bankruptcy will be deleted after 7 years from the delinquency date, regardless of the type of bankruptcy filed.
  • Filing for bankruptcy does not change the original delinquency date of an account.

For example:

  • In a Chapter 13 case, accounts involved in the bankruptcy are removed after 7 years, and the bankruptcy itself is cleared from public records after 7 years.
  • In a Chapter 7 case, accounts involved are removed after 7 years, while the bankruptcy stays on public records for 10 years.

It’s important to review your credit report periodically to ensure accounts are reported accurately and removed when they should be.

Learn More About Credit After Bankruptcy

Negative accounts, whether included in bankruptcy or not, are generally removed from your credit report after 7 years. Even if you’ve paid off the debt, the negative history may still linger for this period. Examples of negative accounts include:

  • Car repossessions
  • Medical bill collections
  • Foreclosures
  • Settled accounts (e.g., short sales)
  • Charged-off accounts
  • Collection accounts
  • Civil judgments (removed 7 years from filing date)
  • Paid tax liens (removed 7 years from the payment date)

Unpaid tax liens, however, can remain on your report for up to 15 years.

Unlike negative accounts, positive accounts remain on your credit report for up to 10 years. Any positive payment history that predates your bankruptcy will continue to help your credit score over time.

By understanding how bankruptcy impacts your credit report and knowing how to track and manage your accounts, you can pave the way to rebuilding your credit and achieving long-term financial stability.

Create a Budget and Emergency Fund

Avoid relying on credit cards by building a solid financial foundation.

Pay Every Bill on Time

Stay on top of all payments, including mortgage, car loans, and student loans.

While utilities, rent, and phone bills may not be reported to credit bureaus, paying them on time builds good financial habits.

Note: Prepaid credit cards won’t affect your credit score as they aren’t reported to credit agencies.

Review Your Credit Report for Accuracy

Regularly check your credit report for errors at AnnualCreditReport.com.

Ensure accounts included in your bankruptcy are marked as “included in bankruptcy” rather than “open and overdue.”

If discrepancies exist:

Contact the creditor to request corrections.

If no action is taken, file a dispute with the reporting agency (Experian, TransUnion, Equifax).

Follow their dispute process online or via mail, and you may need to submit Schedule F from your bankruptcy documents.

Creditors are responsible for updating their reports with all major credit bureaus.If discrepancies exist:

Limit Credit Applications

Avoid applying for multiple new credit accounts at once. Use only a small percentage of the credit available to you.

Be Cautious with Car Loans

While car loans may be accessible soon after bankruptcy, expect high-interest rates.

Choose a loan without prepayment penalties so you can refinance later at a better rate.

Prepare for Homeownership

Mortgage loans may be harder to secure after bankruptcy due to stricter lending practices.

FHA and VA loans may become an option two years post-bankruptcy if you maintain excellent credit.

Start saving now for a down payment to improve your chances.

Bankruptcy Isn’t the End

Filing for bankruptcy should be a last resort, but if you’re overwhelmed by debt and see no other way out, our experienced bankruptcy attorneys can help. Contact us at Hello@bloomlegalkc.com or call our office to schedule your free consultation.

With time, discipline, and smart financial choices, you can rebuild your credit and secure a brighter financial future.

Contact us today to explore your legal options and start your journey toward financial freedom with trusted Kansas City bankruptcy lawyers by your side.

(913) 954-5151