If you're applying for a loan, turning in an application for rental housing or shopping for new insurance, your credit score plays a significant role in your approval. Positive entries, such as a credit card you use responsibly and make regular payments on, improve your credit score. Negative information, such as a bankruptcy, lowers your credit score.
The Bankruptcy Record
When you file for bankruptcy, the bankruptcy record shows up in the section of your credit report reserved for public records. The bankruptcy trade line contains such information as the amount for which the court found you liable, the value of your assets, the bankruptcy case number and your available exemptions. The very fact that a bankruptcy appears on your credit report damages your credit score regardless of whether the information in the trade line is accurate or complete.
Considerations
The Fair Credit Reporting Act notes that all consumers have the right to fair and accurate credit records. You can dispute trade lines on your credit report that reflect incorrect or incomplete information. Thus, if the trade line for your bankruptcy is missing information, you can dispute that entry with the credit bureaus and demand that the credit bureaus report the missing data. The credit bureaus contact the court that holds your bankruptcy record and request the omitted information. If the court does not comply or does not respond to the request, the credit bureaus remove the bankruptcy from your credit files.
Time Frame
A past bankruptcy won't haunt you forever. The credit bureaus legally can leave the bankruptcy on your credit report only for a maximum of 10 years. The type of bankruptcy you file also plays a role in how long the record remains a part of your credit history. If you filed under Chapter 7, the record remains for the full 10-year reporting period. If you filed under Chapter 13, however, the credit bureaus delete the bankruptcy record after seven years.
Credit Impact
The degree to which a bankruptcy damages your credit rating is unaffected by whether the trade line omits information about your case. While everyone's situation is different and there is no guaranteed way to determine how much credit damage you will suffer, an individual with a high credit score suffers greater credit damage than one with a poor credit rating. As the bankruptcy ages, however, it has less of a negative impact on your credit score. Thus, practicing positive debt management habits can help you improve your credit score before the reporting period on the bankruptcy expires.
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