Can a Michigan Chapter 7 or Chapter 13 bankruptcy filing be removed from your credit report? This is a common question asked by many who inquire about the bankruptcy process. In fact, it is almost too common a question in the sense that it illustrates the over-emphasis most place upon the credit score generally.
The truth is that, unless you are in the process of applying for a loan, your credit score doesn’t make one bit of difference in your life. Nevertheless, the financial industry has gone to great lengths to market the importance of the credit score as a sort of barometer of self-worth.
Largely, the financial industry has succeeded in terrifying people into believing that their financial life will be in ruins unless this manufactured “score” dreamed up by the Fair Isaac Corporation is north of 750.
This is nonsense.
But telling people that, doesn’t answer the question asked above, does it? Can a bankruptcy be removed from a credit report? If it can, will that removal benefit one’s credit score?
This Article will attempt to answer both questions—as well as to discuss bankruptcy filing and credit reports generally.
Let’s lay down some of those general facts first.
Understanding the Role of Credit Reports
Love them or hate them, credit reports and reporting have come to play an outsized role in our financial lives. This may be based on nothing but smoke-and-mirrors and marketing, but there it is. And the fact is that, if you are applying for a car loan or mortgage or applying for a new job or government security clearance, the information on the credit report and its resulting credit score will be reviewed and considered by third parties.
Your credit report will influence loan approvals, interest rates, some employment prospects (though only with your authorization), and more.
Thus, it is vital that the information reported by third parties and lenders to the 3 primary credit bureaus—Experian, TransUnion, and Equifax—be accurate.
The Impact of Bankruptcy on Credit Reports
A bankruptcy filing will be electronically reported to the credit bureaus very quickly after your Chapter 7 or Chapter 13 case is filed. Most large financial institutions (most of your creditors, that is) subscribe to services which electronically sweep the credit bureaus for such information on a nearly constant basis, 24 hours per day.
Thus, your larger creditors learn of your bankruptcy nearly always within 30 minutes of filing. This is a good thing when you want collections calls to stop fast. Alternatively, this may be something that you dread if you fear that your “credit rating” will drop immediately upon filing.
For what it’s worth, if you’re in this camp, your fears aren’t totally unfounded. The higher your credit score is when you file for bankruptcy, the more it will be impacted by the filing. Your credit score may dip as low as 200 points immediately after filing for Chapter 7 or Chapter 13 bankruptcy if it is over 700 when you file. Conversely, if your credit score is low, as is most people’s score by the time they file (usually 500 or less), it is not uncommon to see their score jump by 100 points shortly after the bankruptcy case is filed.
However, when your paycheck is being garnished or your home is about to be foreclosed, who cares? Likely, your score is not over 700. If it is, a lot of good it will do you when you’re hastily moving all of your furniture into a U-Haul trailer.
Where does the bankruptcy filing fall onto the credit report?
It will be found under the “Public Records” section of the credit report, along with other Michigan state and other court cases.
How long will it be there?
Either a Chapter 7 or Chapter 13 bankruptcy will remain on the credit report for 10 years from the date of filing. This is true whether or not the case is dismissed or successfully concludes in a discharge of your debt.
If the bankruptcy case does result in a discharge of your debt, however, the individual debts that you owed prior to filing will all be zeroed out on the credit report and listed as “Closed, Discharged in Bankruptcy.”
In the long terms, the positive effect that this has on your debt-to-income ratio, which is the primary component of the credit score, far outweighs the short-term negative credit score drop that the filing itself triggers.
Making the decision to file for bankruptcy is a decision to think in the long-term, always.
Can Bankruptcy Be Removed from Credit Reports?
Read our lips: You cannot remove accurate negative information from a credit report.
Yes, yes, we know: the failed used car salesman who rents office space next to you has a cardboard sign in his window that says, “We fix bad credit.”
This is, to put it mildly, a lie.
Characters such as your used car salesman who claim to be able to “fix” your credit may engage in shenanigans such as reporting as erroneous or disputing factual information that is unfavorable to your credit score—but it will not work in the long run. You have nothing with which to prove your case when the creditor responds to the dispute—because you are lying. Do not fall victim to these con artists who claim to be able to remove a bankruptcy from your credit report. They only want to take your money. Credit reporting agencies report true and accurate information.
You did file bankruptcy. Period. If you want better credit after filing, you’ll need to work hard to get positive reporting recorded again. Further, time heals all wounds. If the bankruptcy case was filed, even if it was later dismissed for not attending your .341 Meeting of Creditors for example, it will appear on your credit report. Many former clients believe that if they “never went through with it” that it should not appear on their credit report. Remember, the credit reporting agencies can report true and accurate information. If a bankruptcy case was filed in your name, with your Social Security number, even if later dismissed, it will be reported on your credit report.
Those “Closed: Discharged in Bankruptcy” debts will fall off entirely when they hit Michigan’s 6-year statute of limitations period for breach of contract claims.
Disputing Inaccurate Credit Report Information
This is not to suggest that you should not dispute inaccurate credit reporting. You absolutely should. Even if you have never filed for bankruptcy, you should review your credit report at least once per year (if not more often) for inaccurate reporting, debts that were not properly closed after bankruptcy discharge, and, yes, fraudulent information.
Experian, TransUnion, and Equifax each include the directions on how to dispute reporting on their creditor reports. If you spot something that is legitimately wrong—dispute it.
But expect to be required to provide documentation (such as a copy of your bankruptcy discharge order) in the process.
The Importance of Working with the Right Professionals
The used car salesman is not, you’ll have guessed, the right sort of professional to work with, if you decide to seek out expert help. Heck, he’s not a professional at all.
There is, in fact, no credential or license for a “credit repair specialist.” This is because the practice of promising to fix bad credit in exchange for money is largely illegal under Michigan and under Federal law. Your Avon lady who decided to print up some business cards to sell “credit repair services” instead of perfume?
She is a con artist.
There are actual professionals with licenses and malpractice insurance who can assist and advise you as to both bankruptcy and credit reporting issues. They’re called attorneys.
An attorney who gives you bad advice or counsels you to do something illegal can lose his or her license or even go to jail.
Your own bankruptcy attorney—the one you trusted to guide you through that complex legal process—is your first stop when seeking advice about bankruptcy and credit reporting. If there is some litigation to be undertaken under the Fair Credit Reporting Act (FCRA), there are even attorney who specialize in those sorts of cases. If your bankruptcy doesn’t handle such matters, he or she may be able to refer you to an attorney who does.
Removing Bankruptcy from Credit Reports: The Bottom Line
The bottom line is that a Chapter 7 or Chapter 13 bankruptcy can change your life. It will save a home from foreclosure, a car from repossession, and a bank account from garnishment—among other things. But it comes with certain consequences and the need to put the time and effort into remedying those consequences afterward.
If your paycheck is being garnished 25% of your take home pay every pay period, your first concern should not be your credit score. It should be putting food on your table for your children.
Keep things in perspective. Don’t buy the financial industry’s marketing-driven hype regarding the allegedly all-important credit score. Do what you need to do to bring your debt within your budgetary limits—and go from there.
And then be pleasantly surprised when, in the end, after your debt-to-income ratio radically re-tilts in favor of “income” rather than “debt,” your credit score doesn’t end up in particularly bad shape anyway.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted thousands of Metro Detroit bankruptcy clients for over 30 years.
If you are considering filing for bankruptcy, contact us now to schedule your free consultation.