There is a lot of confusion surrounding how a bankruptcy affects a credit report. Many believe that the idea of a “fresh start” is supposed to mean that one’s credit should improve after bankruptcy. However, declaring bankruptcy and defaulting on payment obligations should cause a great deal of harm to one’s credit standing. Below we will explore how a bankruptcy affects a credit report and what a consumer should look for when reviewing their report after bankruptcy.
Benefits of Declaring Bankruptcy
There is some good that comes from bankruptcy aside from not owing the debts themselves. All of the balances on your credit report for the accounts that were discharged will reflect as zero. When it comes to credit scoring, the ratio between outstanding balances owed to the total available credit is a large factor. This is one part where a score is improved. The ratio is at its very best right after bankruptcy.
Setbacks of Declaring Bankruptcy
The public record of bankruptcy and the accounts that were reported can remain on a credit report for up to ten years from the discharge. Potential creditors will see that a bankruptcy was filed for quite some time. Additionally, a creditor reporting an account that was included in bankruptcy must report the current, accurate status of the account. That is: that the account was included in bankruptcy, that there is no balance outstanding, and that there is no payment currently owed.
What to Do After Declaring Bankruptcy
A person who obtains a bankruptcy discharge should obtain a copy of their credit file a couple of months after the discharge. First, check to see whether the accounts that were included in the bankruptcy all have a zero balance and that they are not reporting any payments that are past due at that time. If there are any errors in how a creditor is reporting the account, dispute this inaccuracy to the credit reporting agencies. It would be wisest to perform such a dispute in writing, by mailing a letter to the credit bureaus that encloses a copy of your discharge order.
The other area to check on the credit report is in the Inquiry Section. Once an account has been discharged and the debt is no longer owed, that creditor no longer has the legal right to look at a credit report of that consumer. Yet often, former creditors perform Account Review credit inquiries. Such an intrusion may violate the Fair Credit Reporting Act.
If you have received your bankruptcy discharge and have noticed inaccuracies on your credit report, or a creditor has gained unauthorized access to your credit file, please contact SmithMarco, P.C. for a free case review.