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Unfortunately, many bankruptcies can’t be removed from your credit report, but there are a few instances you may qualify for if your circumstances are right. For example, removing dismissed bankruptcies from credit reports is possible. Here’s everything you need to know about bankruptcies and removing them from your credit report.
There are four main categories of bankruptcies:
A Chapter 7 bankruptcy, also known as a liquidation bankruptcy, is where a person's (or business's) assets are sold off to pay as many creditors as possible. The creditors are paid off based on priority, which is determined by a trustee the court has appointed. Secured debt creditors are paid off first before any unsecured debt lenders. When all the assets are sold off, any outstanding debt is usually forgiven.
Chapter 7 is the most common type of bankruptcy as it's the most straightforward and cost-effective for the debtor. It gives people the opportunity to wipe out their debts and start fresh. However, one downside of the Chapter 7 bankruptcy is that if you own a home, you’ll likely have to surrender it as an asset for repayment.
In a Chapter 13 bankruptcy, also known as a reorganization bankruptcy or a wage earner's plan, individuals must reorganize their finances and create a repayment plan. Debtors must submit and follow a plan to pay off their creditors within three to five years. Businesses can also file for a Chapter 13 bankruptcy.
The repayment plan includes an agreed-upon monthly amount given to an appointed trustee to redistribute to creditors. Under a Chapter 13 bankruptcy, debtors must repay a significant portion of their debt. Repayment must equal, at a minimum, what the creditors would have received under other types of bankruptcy. Additionally, a Chapter 13 bankruptcy can require that up to 100 percent of the debtor's disposable income goes toward paying back debt.
To be eligible for a Chapter 13 bankruptcy, your unsecured debt has to be less than $394,725 and secured debts have to be less than $1,184,200 as of 2022. These limits are updated every three years to adjust for inflation. Additionally, to qualify for Chapter 13 bankruptcy filing, the individual must complete a credit counseling course.
A Chapter 13 bankruptcy is much more complicated to file and drags the process on for several years as you repay your creditors. Still, some people choose Chapter 13 over a Chapter 7 bankruptcy so they can keep their homes. Once you initiate a Chapter 13 bankruptcy filing, the home foreclosure process is immediately halted.
First, it's important to note that a dismissed bankruptcy doesn't mean your remaining debts have been wiped away. In fact, it does the opposite and undoes the bankruptcy you've filed. A dismissed bankruptcy happens when the legal terms of the bankruptcy haven't been met, the court has found the filing isn't appropriate or fraud has been uncovered.
Typically, a bankruptcy filing results in some portion of your debts being wiped away after you followed the agreed-upon repayment terms (depending on if you filed a Chapter 7 or 13). As a result of filing for bankruptcy, creditors and lenders are prohibited from trying to come after you for debt collection. However, if you fail to complete the terms of the bankruptcy filing, the bankruptcy can be dismissed.
A Chapter 7 bankruptcy is most often dismissed because fraud is discovered. Chapter 13 bankruptcies can be dismissed because the debtor failed to complete their credit counseling course or didn't stick to their repayment plan.
A trustee is involved with both Chapter 7 and Chapter 13 bankruptcy filings, and they have the power to dismiss a bankruptcy filing if they have a legitimate reason to do so. When a bankruptcy is dismissed, you're no longer protected from creditors and they can begin collection attempts again.
Individuals can avoid having their bankruptcy dismissed by carefully following the instructions outlined with their filing, sticking to their payments and providing all relevant documents in the initial filing.
A dismissed bankruptcy can be (and often is) reported to the credit bureaus and added to an individual's credit report.
A discharged bankruptcy is when an individual receives a formal court order that releases them from personal liability for certain types of debts. At the end of a bankruptcy, after you've completed all your expected actions, any remaining debts are wiped out (or discharged). After debts are discharged, creditors are prohibited from contacting the individual and attempting further debt collection.
Typically a court grants the discharge immediately, but the exact timing can vary depending on the type of bankruptcy filed. Under a Chapter 7 bankruptcy, the discharge typically happens four months from when the bankruptcy is filed. A Chapter 13 bankruptcy takes much longer; the discharge occurs after the debtor completes their repayment plan, usually after three to five years.
There are a few types of debt that are exempt from discharge, including:
Bankruptcies can significantly hurt your credit for an extended time. A bankruptcy is a negative item that will appear on your credit report and could cause your credit score to plummet.
Future lenders and creditors will typically reject applicants with a bankruptcy on their credit report. Even if a lender approves you, it'll be at extraordinarily high interest rates, with low credit limits and poor borrowing terms. As a result, individuals with bankruptcy filings have to spend years rebuilding their credit with limited access to credit and using tools like prepaid and secured credit cards.
A Chapter 13 bankruptcy will stay on your credit report for seven years from the filing date. In comparison, a Chapter 7 will stay on longer—dropping off your account 10 years after the filing date.
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You can't remove a wholly accurate and legitimate bankruptcy from your credit report. But if there are inaccuracies with the bankruptcy information, you can file a dispute for removal. Errors are a lot more common than you might think. According to a Consumer Reports investigation, more than one-third of Americans have a mistake on their credit reports, bankruptcies included.
Some of the common bankruptcy mistakes on credit reports are:
You can file a dispute with the credit bureaus when you find inaccurate or false bankruptcy information on your credit report. The credit bureaus will reach out to the source that provided the information and ask them to verify the data. If they can't verify it, the bankruptcy will be wiped from your credit report.
Note that if only the details are wrong—like an incorrect address—your credit report might simply be updated after filing a dispute, but the bankruptcy may remain.
No one wants to file bankruptcy, but unfortunately, it does happen. After filing, the best thing you can do is focus on your financial health recovery. It's important you don't repeat your past mistakes to avoid ending up in the same situation again in the future.
Some of the steps you can take to recover from bankruptcy are:
Bankruptcy is a life-changing event, but it doesn't have to prevent you from moving forward. With the proper dedication, you can recover and get your financial health back on track.
However, filing disputes with the credit bureaus is a lengthy process. Many people don't have the experience, time or patience to deal with disputes and choose to work with a credit repair company like CreditRepair.com. The credit repair specialists at CreditRepair.com will review your credit report with you, find all inaccurate information and file disputes on your behalf.
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