Myths about bankruptcy and your credit score debunked

March 22, 2018 Posted by kingcade

There are many misconceptions surrounding the amount of time it takes to rebuild your credit after bankruptcy.  We are clearing up some of the common misconceptions about how bankruptcy affects your credit score.

Myth #1: All bankruptcy information stays on your credit report for ten years.

The Truth: Only the public record of a Chapter 7 bankruptcy lasts for ten years.   All other bankruptcy references remain on your credit report for seven years, including:  Line items stating “account included in bankruptcy;” Third-party collection debts, judgments and tax liens discharged in bankruptcy and Chapter 13 public record items.  Once these items begin to disappear, you will see a bigger boost to your credit score.

Myth #2: You will have poor credit as long as the bankruptcy information stays on your credit report.

The Truth: This is one of the biggest misconceptions and one that our clients can tell you is a complete myth.

My credit score said on all three reports 775, I couldn’t believe that I had such a great score before 10 years. Tim for me was the best move I have made for my situation. I have no regrets, I am glad the past is the past. – Bill T.

Hi Tim- I just wanted to send a quick note and thank you and your team for handling my bankruptcy case.  It is only a month or two after discharge, and my credit scores are already in the upper 600’s.  I’ve sent a screenshot in the event that you would like to use this to show prospective clients. – C.S.

You can begin to build your credit back with smart credit management.  Within a few years, you can obtain a “good” credit score ranging from 700 – 749 by doing the following:

  • Adding new credit, such as secured credit cards or small installment loans, to offset the negative information on your credit report;
  • Making on-time payments for all debt, new and old;
  • Keeping your credit card balances under 30% utilization.

Myth #3: Bankruptcy affects the credit of all filers equally, regardless of the amount of debt.

The Truth: Your credit score will factor in details such as the amount of debt discharged and the proportion of negative to positive accounts on your credit report. If you have a low amount of debt and only a few accounts included in your bankruptcy, your credit score will be higher than someone with a more severe bankruptcy case.

Myth #4: You cannot get a credit card or loan after filing for bankruptcy.

The Truth: Credit cards are one of the best ways to begin rebuilding your credit and you will be surprised how quickly offers for them will appear in your mailbox after filing for bankruptcy.  Secured credit cards, which require an upfront security deposit, allow you to spend and build credit easily and safely.

Myth #5: Bankruptcy will ruin your credit forever.

The Truth: Bankruptcy will damage your credit in the short term, but practicing good financial habits, can rebuild your credit to be stronger than ever. A report from the Federal Reserve Bank of Philadelphia showed that those who filed for Chapter 7 bankruptcy in 2010 had an average credit score of 538.2 on Equifax’s scale of 280 to 850. But the average score jumped to 620 by the time those bankruptcies were finalized, approximately six to eight months later. There are many ways to rebuild your credit after filing for bankruptcy. There are certain limitations you will face after filing, but taking advantage of the right financial tools can go a long way in helping you get back on the right path for your financial future.

If you have any questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.