Bankruptcy and Your Credit Report
Dispelling myths: everything you need to know about bankruptcy and your credit report.
Understanding bankruptcy and your credit report first means understanding your credit report. Yes, it is true that bankruptcies are reported to the credit bureaus by the federal government and remain on the report for six years post-discharge (14 years for second and third-time bankrupts). Does this sound like a long time? Yes, it is, BUT let’s look at other matters that are recorded on your credit report, how they report and the impact this has on you.
Myth #1 – R9s, collections, bankruptcies and bad credit ONLY appear on credit reports for up to seven years.
This is by far the biggest myth. It causes many to think that if they ignore their bad credit long enough it will just go away. Creditors typically report to the credit bureaus every month. Creditors generally don’t stop updating your credit report unless the debt was included in a bankruptcy or proposal, has been settled, or paid in full.
As such, an R9 rating appears for seven years from the date it was last reported to the credit bureaus. For example, if a debt was from 2010, and it is 2015, and the creditor is still reporting monthly, the seven years will run from the most recent month reported. In this example, seven years from 2015.
Myth #2 – A bankruptcy on your credit report is worse than having an R9.
Hands down, an unpaid R9 is the worst thing you can have on your credit report. Upon filing bankruptcy, you can begin to rebuild your credit right away, but an unpaid R9, even with other debts reporting as paid and current, will prevent you from getting additional credit. The bankruptcy will remain on your report six years from discharge (14 years post-discharge for second and third-time bankrupts) whereas an unpaid R9 will remain on your credit report for at least seven years, and will only be removed seven years after it has been paid in full!
Myth #3 – I won’t be able to get credit until the bankruptcy is removed from my credit report.
This is simply not true. In fact, many individuals are able to get credit, and even mortgage financing, one to two years following their discharge from bankruptcy. It’s important that you begin to do what is necessary to rebuild your credit immediately upon going bankrupt, and no later than obtaining your discharge. We will explain how to do this in the course of your two budgeting and money-management sessions.
Typically, if you have already missed monthly payments to your creditors, the damage to your credit report has already been done. Repairing your credit can only begin in earnest once past debts are paid in full, or are included in a bankruptcy or consumer proposal. In fact, the longer debts are reported as being unpaid on your credit report, the longer you will continue to have bad credit.
If you would like an initial consultation to discuss and review your finances please contact us. We would be pleased to meet with you. The consultation is free.
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