What Does Bankruptcy Do?

Bankruptcy & Your Credit

For consumers who choose to file for Chapter 7 bankruptcy protection, they can expect serious damage to their credit score in the near term. The filing of a Chapter 7 petition, however, does not mean that consumers will never get credit again. Nor does it mean that their credit score will be damaged for long.

After a bankruptcy, many good things happen that will assist the consumer immediately in rebuilding their credit. First and foremost, most consumer debt is presumed will be discharged following the bankruptcy. While there are exceptions (student loans and secured credit) creditors and the FICO scoring model recognize that most of the consumer’s debt will be gone, and the consumer will be able to take on new debt without the burdens of prior unsecured debt. All this leaves the consumer in a better position to assume new debt. So for most people who receive their discharge, the drop in score is only temporary, and the score begins to rebound within a matter of months. This is the effect of the “fresh start” promised by Chapter 7.

Even though the consumer should expect to see a rebound in their score and the ability to assume new credit, many creditors fail to properly report their accounts following a Chapter 7 bankruptcy and continue to report the debts inconsistent with the discharge and industry reporting standards. This article will explain how your report should look after a discharge and what to look for if you think that your former creditors are not complying with the obligations under the discharge order.

What Data Is on My Report?

The major credit reporting agencies collect a broad spectrum of information from creditors about the accounts that they service. This includes identification information that allows the bureaus to match the account with a consumer in their database. The credit bureaus also collect information about the type and status of the account, along with payment and balance information. For purposes of how bankruptcy impacts your report and score, the most important data information is the account balance and account status information. After a Chapter 7 bankruptcy these field will change. For more information about bankruptcy and credit reporting, you can review the Credit Reporting Resource Guide, published by the Consumer Data Industry Association (CDIA) or you can call the CDIA at (202) 371-0910.

How Does My Report Change After Filing for Chapter 7 Protection?

After filing of a Chapter 7 bankruptcy, the first change in your account will occur. There are two specific status codes that are associated with accounts. The first one relates to the consumer and the second relates to the payment status of the account.

Upon receipt of the notice of Chapter 7, the creditor should change the consumer’s status of to reflect that the creditor cannot enforce the obligation against the consumer unless they request permission to do so from the bankruptcy court and the obligation will be discharges unless the Court rules otherwise. A second status code is associated with the account. This code should indicate the payment status (e.g. 30 days late, charged off, etc. . .).

At the time of filing, your balance, scheduled next payment, and the past due amounts will remain the same as prior to filing and should remain the same until the Court enters its final disposition. For more information about bankruptcy and credit reporting, you can review the Credit Reporting Resource Guide, published by the Consumer Data Industry Association (CDIA) or you can call the CDIA at (202) 371-0910.

How Does My Report Change After Discharge?

If the Court grants your discharge, your report will change again.

The account should now reflect that the consumer successfully received their discharge of the account, signalling that the account is no longer legally enforceable. The account’s payment status will remain the same and reflect the status at the time of filing, (e.g. paid or paying as agreed, 30 days late, charged off, etc. . .)

But now, the outstanding balance should a $0.00 balance. The past due amount should still reflect the balance that was past due at the time you filed bankruptcy. For more information about bankruptcy and credit reporting, you can review the Credit Reporting Resource Guide, published by the Consumer Data Industry Association (CDIA) or you can call the CDIA at (202) 371-0910.

What Kinds of Errors Happen With Bankruptcy?

There are several common errors that creditors make when reporting Chapter 7 bankruptcy accounts, any of which can damage the consumer’s credit score:

Consumer Status

Following a Chapter 7 discharge, any discharged accounts should reflect a new consumer status of ” discharged in bankruptcy .” This status code informs creditors and scoring models that the debt is no longer valid or owed. While having a discharged account on your report can be negative, as time goes by, the negative effect gives way to the positive effect of not carrying the debt load associated with the account. This is not the same as the account status which should reflect the status at the time the Chapter 7 petition was filed .

Many creditors fail to include this all important status code change, even when otherwise reporting the account correctly. The result is an account that appears that the consumer may have paid off the account, but which has a outstanding credit continuing to be available for the consumer’s use.

Balance

After entry of the final discharge order, the current balance should be zeroed out to reflect that there is nothing remaining due on the account. This is not the same as the amount of the payment or past due amount, both of which should reflect the same amounts as reported at the time the Chapter 7 petition was filed.

What Should I Do if I Find a Bankruptcy Reporting Error?

If you find an error on your report relating to an account that was included in a Chapter 7 bankruptcy, you should dispute that account and identify the specific error that was made and include the support documents.

What Additional Resources Are Available to Help?

• Want to see a list of the credit bureaus who keep data on you? Check out our Credit Bureau List.
• If you need help deciding which reports you need, you can read our article on Credit Reports to Order.
• Need help getting your credit report, see our article on How to Get Your Credit Report.

Common Cases

You may have a case under the Fair Credit Reporting Act if you notice the following things on your background report:

• Fraudulent identity theft accounts on your credit credit report.
• Someone else’s Information on your credit report.
• Paid accounts still showing a balance due.
• Reporting your accounts in good standing as charged off or in collections.
• Discharged debts still reporting as owed.
• Paid tax lies showing as still owed.
• Derogatory accounts more than 7 years old still on your report.
• Previously deleted accounts that have been reinserted on your report.
• Duplicate reporting of the same account.

If you would like help with one of these problems, call (888) 400-CREDIT | (888) 400-2733 or contact us through this site.

How Much Are Your Fees?

We only charge a fee if we are able to recover for you, and The Fair Credit Reporting Act requires the other side to pay your attorney’s fees if you win. You pay nothing up front and we take our fee from the other side.

Follow Up and Monitoring

After your case is done, we will help you to regularly check and monitor your background checks with free annual reviews of your background checks and credit reports to insure that you stay free of false conviction information.

Work with an Credit Report Attorney

If you have been the subject of an inaccurate credit report, you may have be able to seek a correction and compensation for any harm. Our firm can help. For more than 25 years, the attorneys of Lyngklip & Associates have represented victims of bogus credit reports credit reports and been a resource for Michigan consumers who need the help of an experienced lawyer.

To learn more or to schedule a free initial consultation with a credit report lawyer, contact our law firm today or call (888) 400-CREDIT | (888) 400-2733 or contact us through this site. In Michigan, you can reach our office at (248) 208-8864.