Each year, more than 500,000 consumers file for bankruptcy to help alleviate a mounting burden of debt they can no longer afford to pay. And while filing bankruptcy has the benefit of wiping out or seriously reducing what’s owed to creditors, it creates a less than rosy credit picture that can be difficult to overcome. Individuals who file bankruptcy may find it challenging to acquire new credit, including car loans, credit cards, or a mortgage based on the negative entry on their credit report. However, there is a way to remove bankruptcy from your credit file after it is filed. Here’s what you need to know.
First, an overview of Chapter 13
There are two common types of bankruptcy that may be filed for individual consumers: Chapter 7 and Chapter 13. The first involves forfeiting certain assets in order to pay off debts owed while walking away from the rest. In Chapter 13 bankruptcy, a repayment plan is created in order to satisfy outstanding debts, although the total amount repaid is typically far lower than the original balance(s) owed. Chapter 13 bankruptcy is often viewed in a more positive light than Chapter 7 because of the ownership individuals take in the process and the requirement of repayment over time. However, both impact credit in a big way.
Individuals who file either Chapter 7 or Chapter 13 bankruptcy will see a public record entry on their credit reports from all three of the credit bureaus. Detailed information about the bankruptcy, including the date it was filed and the debts included in the filing, is listed on a credit report for new creditors to see.
The difference between Chapter 7 and Chapter 13 credit entries is that the former (Chapter 7) stays on your credit report for ten years; the latter (Chapter 13) remains for only seven. Until the bankruptcy is removed, however, it can have a negative impact on your credit score. There are steps you can take to rebuild your credit after bankruptcy, but you may also consider getting it removed altogether.
Getting Chapter 13 Removed
Like all negative entries on a credit report, there is always a glimmer of hope that the dispute process for each credit bureau may result in removal. Chapter 13 bankruptcy entries are no different, but they require a different approach. The first step in getting Chapter 13 bankruptcy removed from your credit report is to carefully review the public record entry for accuracy. If there are any discrepancies relating to the date, your debts, and your personal information, a dispute is warranted. Simply follow the steps to dispute the bankruptcy entry like you would with any other error. Just remember, you’ll need to go through the dispute process with all three credit bureaus, not just one. That includes Equifax, Transunion, and Experian.
Once the dispute is received by the credit agencies, each will either verify your bankruptcy details and inform you that the entry was correct, or they will fail to verify the entry and remove it from your credit report. When the bankruptcy is verified, you still have a course of action for removing Chapter 13 from your report. You will need to send a procedural request letter (you can find a sample here) to each of the credit bureaus asking how they verified the bankruptcy. In many cases, the bureaus will state they did so through the courts, but this is often not the full picture. If this is the response you receive, you have more work to do.
You will need to follow up with the specific court in which your bankruptcy was filed and ask if the credit bureaus verified the entry. Most courts do not verify bankruptcy filings for the credit bureaus, so if this is the answer you receive, ask for it in writing. Once you receive the written confirmation that the bankruptcy was indeed not verified, send it along with a dispute letter to each credit bureau and demand the entry be removed. This is a long tedious process, but it can result in a clean slate as far as your credit report is concerned.
The Bottom Line
Filing bankruptcy can be a beneficial move if you have gotten in over your head with debt and have little to no means to repay it all. However, the ramifications of doing so can be devastating to your overall credit profile. The good news is that, like any other negative credit information, you have the right to dispute bankruptcy entries when details are inaccurate. If the credit bureaus do not take the steps to adequately verify your bankruptcy filing, you may be in luck for getting the entry removed if you’re diligent and patient throughout the process.
