The idea of bankruptcy scares people, primarily because of the credit ramifications. Often people wonder what will show on their credit report after bankruptcy. Some people assume bankruptcy will remove everything except the bankruptcy. Others are unsure what will show but assume it will be horrible.
Credit reports are intended to be an accurate chronology of financial events, before and after bankruptcy. Most people assume their credit reports will be accurate, but that is rarely the case. The credit reporting laws do not require lenders to report anything. It is true, lenders are not required to report your payment history. Most major banks like Bank of America, Wells Fargo, Chase and Citibank routinely report to the credit reporting agencies, but most payday lenders and small businesses do not. This means your credit report may omit substantial information.
After a bankruptcy is discharged, your debts are forgiven and there is nothing due or late to report. Often, accounts discharged in bankruptcy will be reported as “discharged,” but the law does not require it. Unfortunately, the pre-bankruptcy late payments, collections and other problems will remain on your credit report. They say time heals all wounds, and that is true for credit reports. Most marks, good or bad, are removed after 7 years.
Most people realize good credit is a history of on-time payments, and bad credit is a history of missed or late payments. Paying cash for purchases may be a wise financial decision, but it will not demonstrate your ability to repay loans. If, for example, you take new credit cards after bankruptcy you can begin to establish a history of paying debts on time. The way you use and pay revolving debt, like credit cards, accounts for 40% of your credit score making it the largest factor in a credit score. Payment history accounts for 35% of your credit score making it very important too.
Once a lender decides to report to the credit reporting agencies, the law requires all reporting to be truthful and accurate. The law gives consumers the right to dispute any mark that is not truthful and accurate. Disputing marks on a credit report must be done in writing, so there is no point in calling the credit reporting agencies. Written disputes can be submitted by mail or online.
In summary, a credit report should accurately reflect financial events before and after bankruptcy. After bankruptcy, you have the chance to begin anew.
At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch, and Hercules.