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One of the questions I’m asked most frequently as a bankruptcy lawyer in Florida is “How long does bankruptcy stay on your credit report?” We wanted to provide a bit more context than a simple timeline to help you make a more informed decision about your financial future.
First, let’s look at Chapter 7 bankruptcy and what it is. This is a “liquidation” bankruptcy designed to clear your debts so you can move forward with a clean slate. When you file for Chapter 7 bankruptcy, all debt collection grinds to a halt, including foreclosure, eviction, repossession, wage garnishment, and threats of lawsuits.
The court then appoints a bankruptcy Trustee to analyze your finances and assets, and determine if you have unexempt property that can be sold (such as stocks or a second car) to pay off creditors and what debts can be discharged. You will be required to attend a mandatory 341 meeting of creditor where the Trustee will examine you under oath.
Because this is such an extreme step to get out from under debt, it’s reserved for people under the state’s median income level or those who simply do not have the disposable income after essentials to pay off debt. This is also why it stays on the individual’s credit report for 10 years, which is significantly longer than most other negative marks.
You can obtain a free copy of your credit report once per year.
Chapter 13 bankruptcy is a less extreme step that allows you to restructure your debt. Typically, this is best for people who have some disposable income to make payments, but don’t have lump sums that creditors may require or perhaps got behind and overwhelmed by payments.
Additionally, through chapter 13 you can catch up on missed mortgage payments and prevent foreclosure.
By filing for Chapter 13, you attend credit counseling sessions and create a three to five year payment plan for your debts, including credit cards and medical bills, and submit this to the court. The court will approve or deny the plan and if approved, you’ll work with a trustee to oversee your progress. All communication with creditors will cease as you will make debt payments to the trustee who will then act on your behalf to convey the payments.
Because Chapter 13 is less extreme, as long as you maintain your payment plan and successfully complete it, it will only stay on your credit for seven years.
Once you file for bankruptcy, you can’t have it removed early from your credit report, and it is true that it will negatively impact your rating for several years. This is true even if your case gets dismissed. However, it will fall off completely after the allotted time span, and as you work to rebuild your credit and get back on your feet after bankruptcy, by the time it falls off, you’ll have a clean slate.
For many people, filing for bankruptcy after years of late and missed payments, high debt to income ratios, and credit cards near or exceeding maximum usage, allows them to clear their credit sooner than if they were making minimum payments on their debts.
If you are struggling with debt and need to understand your options, reach out to Stiberman Law today for a free consultation with a bankruptcy attorney in Florida who you can trust. Call us today at (954) 922-2283 or fill out the form below to get started.
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