How to Remove a Bankruptcy from Your Credit Report

Each year, scores of individuals file for bankruptcy. And unfortunately, the damage to their credit score is catastrophic. In fact, the impact is so severe that credit scores will still suffer even if the debtor has paid off what they owe.

The good news is there are ways to get a bankruptcy removed from your credit report. You can also take specific actions to start boosting your credit score right away.

Keep reading to learn more.

How does filing for bankruptcy impact your credit score?

Bankruptcies are one of the most detrimental items that can appear on your credit report. Like judgments and tax liens, they report as a public record and tank your credit score.

If your credit profile was stellar and you had a high FICO score prior to filing for bankruptcy, you should “expect a huge drop in [your] score,” according to myFICO. But if your credit was already in the trenches due to the presence of negative items on your report, you would probably “only see a modest drop in [your] score,” the article adds.

The more accounts included in the bankruptcy filing, the greater the impact on your score. Why so? These accounts will report for seven years from the original date of delinquency. And the impact is the same even if they get discharged through bankruptcy.

(Quick note: Have you recently filed for bankruptcy? Are the accounts included in the filing reported accurately? If not, send dispute letters to each of the credit bureaus to have the issue rectified. Be sure to specify which accounts are incorrect. Also, include the schedule of debt covered under the filing. And if applicable, attach any supporting documentation to substantiate your claim).

Your credit score will start to bounce back over time, and it may not take as long as you think. This is due to the fact that discharged debts are no longer owed. This means your credit utilization ratio will now be much lower. And since amounts owed account for 30 percent of your credit score, you will start to see small increases as creditors update the balances.

But if can get the bankruptcy removed from your credit report, that means good news for your credit score much sooner than later. More on that shortly.

How long will the bankruptcy remain on your credit report?

Discharge date vs. reporting timeline

The length of time that the bankruptcy reports depends on the type you file. The rules are as follows:

  • Total Discharge or Chapter 7- up to 10 years from the date of filing
  • Reorganization or Chapter 11- up to 10 years from the date of filing
  • Repayment Plan or Chapter 13- completed bankruptcies; usually takes 3 to 5 years)- up to 7 years from the date of filing

But individual accounts included in the filing report for seven years. This is the case even if you filed under Chapter 7 or 11.

Is it possible to remove a bankruptcy from your credit report?

Removing a bankruptcy from your credit report takes quite a bit of persistence. But it’s not impossible. You have two options to move forward:

Do-It-Yourself

You can dispute bankruptcies with the credit bureaus. You’ll need to write a letter to plead your case (i.e. inaccurate information). You can also request that the credit bureaus verify the bankruptcy. They have 30 days to respond or the credit bureaus must delete the entry from your credit report.

But what if they do respond without providing proof that they actually verified the debt? Retrieve a written statement from the court to prove the credit bureaus failed to verify the bankruptcy. You would then send this information on to the credit bureaus to have the bankruptcy removed from your credit report.

When working to get the bankruptcy removed from your credit report, you should also address the associated collection and charge off accounts that were apart of the bankruptcy proceedings. The fewer negative entries on your credit report, the better..

Hire a reputable credit repair company

Are you uncomfortable with the dispute process or strapped for time? It may be worthwhile to hire an experienced, reputable credit repair company to do the legwork for you. They possess the knowledge to work towards having the bankruptcy removed in the shortest amount of time possible. Reputable credit repair companies will also address other negative items on your credit report to give your score the best possible chance of recovering from the damages sooner than later.

Tips to help rebuild your credit after bankruptcy

If you’ve already felt the wrath of bankruptcy, chances are you’re not feeling too optimistic about your future credit score. However, the good news is filing for bankruptcy won’t haunt you forever, and the odds of rebuilding your credit are definitely in your favor.

Of course, having the bankruptcy removed from your credit report is the easiest way to get your credit back on track in the shortest period possible. You can also take the following actions to boost your score:

Clean up your “financial” act

There are a number of reasons why you may have been forced to file for bankruptcy. But what’s most important when rebuilding your credit is not the culprit, per se, but making sure that history doesn’t repeat itself. In other words, you want to establish a solid plan for your finances to make your money work for you. In your list of objectives should be creating a realistic budget that keeps your spending in check, safety net, and plans to eradicate debt that wasn’t included in the filing.

Confirm accounts included in the filing are updated

As mentioned earlier, debts discharged in bankruptcy should be updated to reflect a zero balance. This will automatically give your score a small boost because your credit utilization ratio will plummet.

So, you want to access a free copy of your credit report from AnnualCreditReport.com and confirm accounts that were included in the filing are being reported accurately. If not, file a formal dispute with the credit bureaus to have the accounts rectified.

Stay on top of your credit report

Is your credit score an accurate representation of your credit history or are errors dragging your score down? While the bankruptcy probably took a toll on your score, there’s a possibility that other inaccurate or untimely information is in your credit report and impacting your credit rating.

For this reason, you should review your report regularly to ensure all the information contained is accurate and untimely. And should you find issues, dispute them with the credit bureaus promptly.

As mentioned earlier, you can access free copies of your report once a year from the three credit bureaus through AnnualCreditReport.com. It’s also a good idea to stay on top of your credit report and activity through a free credit monitoring service, like Credit Karma, Credit Sesame, or WalletHub.

Apply for a credit builder loan

While working to have the bankruptcy removed, you can also apply for a credit builder loan through your financial institution or local credit union. Credit builder loans require a deposit into a savings account that is equal to the loan amount. The financial institution reports payments to the credit bureaus and the funds are accessible once you pay the loan off.

You can also use Self Lender, which only requires a small administrative fee upfront and monthly payments until the loan is paid in full. In a nutshell, they take the loan amount and deposit it into a certificate of deposit. Payments are reported to the three credit bureaus to help you establish a positive credit history. And at the conclusion of the loan term, you can withdraw the funds or choose to roll them over into another credit builder loan product.

Get a secured credit card

If you don’t mind making an initial deposit to access your credit line, a secured credit card may be right for you. They’re another great way to help rebuild your credit after bankruptcy and function just like unsecured credit cards. However, they sometimes come with hefty APRs and administrative fees. And the creditor holds your deposit until the account closes or the creditor extends an unsecured credit card offer to you.

Be sure to make timely payments on any new debt or credit products

Since late payments account for 35 percent of your credit score, you can’t afford to not make timely payments on credit products when you’re trying to rebuild your credit after bankruptcy. Why so? Well, all it takes is one late payment to plummet your score between 90 and 110 points, notes Equifax.

The good news is creditors won’t report past due accounts until they’re delinquent by over 30 days. So, besides the fee that you’ll incur, a payment that’s a few days late isn’t the end of the world.

Manage new credit responsibly

Amounts owed account for 30 percent of your credit score, and the lower your credit utilization, the better. This means you should manage new credit responsibly by using any new revolving credit sparingly. Aim for a credit utilization ratio of 30 percent or lower.

The bottom line

Filing for bankruptcy doesn’t mean your finances and credit score won’t recover. And by taking the right steps, you can have it removed from your credit report and start rebuilding your score sooner than you think.

Best Credit Repair Companies

You’ve attempted to repair your own credit and haven’t had much luck. Or maybe you’re looking to start cleaning up your credit report, but don’t quite understand how credit repair works or are strapped for time. Don’t fret. We’ve compiled a list of the best credit repair companies in the industry, along with a detailed description that includes their offerings and pricing.

Best credit repair companies

Credit Assistance Network

At a glance:

  • Established in 2004
  • National Association of Credit Services Organizations (NACSO) member
  • A+ Better Business Bureau Rating
  • Free credit analysis available
  • Flat-fee of $179 ($279 for couples), $50 per deletion, $75 per public record

Company Overview:

Rated A+ by the Better Business Bureau, the Credit Assistance Network offers unique credit improvement services to help you get your credit score back on track. They’ve been around since 2004 and are members of the National Association of Credit Services Organizations (NACSO).

Member services include:

  • Compilation and submission of debt validation and dispute letters for each of the three credit bureaus, Equifax, Experian, and TransUnion (limited to 45 items)
  • Identity theft and Chex Systems solutions
  • Assistance with settlement offers
  • Live phone support at a toll-free number
  • 24/7 access to your account via the online portal
  • One-on-one credit coaching to discuss ways you can boost your score sooner than later

You can get started with the Credit Assistance Network by requesting a free credit analysis online or calling 1-800-811-3078. And if you decide to enroll with your spouse, you will receive 20 percent of the associated fee, which is $179 ($279 for couples). A fee of $50 and $75 also applies for the deletion of negative items and public records, respectively.

Since services are offered on a monthly basis, you can cancel at any time without incurring penalties or fees.

Visit the Credit Assistance Network or call 1-800-811-3078 to get started.

CreditRepair.com

At a glance:

  • Established in 2012
  • Free consultation
  • Customers see an average improvement of 40 points in four months on TransUnion score
  • $99.95 per month

Company Overview:

Established in 2012, CreditRepair.com offers credit repair and education services for only $99.95 per month. On average, CreditRepair.com members see improvements of 40 points on their TransUnion credit score within the initial four months of enrolling in the service.

When you enroll, you’ll have access to an online dashboard that can be accessed 24/7 from your desktop or mobile device along with a score tracker and analytical tool to help you identify key areas for improvement. Membership also includes TransUnion credit monitoring, text, and email alerts.

Visit CreditRepair.com or call 1-855-255-0263 to get started.

Credit Saint Credit Restoration

At a glance:

  • Established 2007
  • A+ Better Business Bureau Rating
  • Free consultation
  • 90-day results guarantee
  • Three plans: $59.99, $79.99, and $195 per month (first work fee applies)

Company Overview:

Credit Saint Credit Restoration is another key player in the industry. But what sets them apart is their 90-day money back guarantee if you don’t see results. They’re also BBB Accredited with an A+ rating and are the recipient of Consumers Advocate Best Credit Repair Company of 2017 award.

They also offer a free consultation to see if it’s a good fit. And should you decide to move forward, there are three plans to choose from:

  • Polish ($59.99 per month): excludes bankruptcies, repossessions, and judgments ($99.00 first work fee applies)
  • Remodel ($79.99 per month): excludes judgments ($99.00 first work fee applies)
  • Clean Slate ($195 per month): all-inclusive credit repair services ($195.00 first work fee applies)

Services are billed on a month-to-month basis and you can cancel your membership at any time.

Visit Credit Saint Credit Restoration or call 1-877-637-2673 to get started.

Lexington Law

At a glance:

  • Established 1991
  • Hundreds of thousands of clients served
  • Free credit consultation, TransUnion report summary, and credit report review
  • Three service levels: $89.95, $109.05, and $129.95 per month
  • 50 percent family and friends discount

Company Overview:

With over two decades of experience in the business, Lexington Law has served hundreds of thousands of consumers. In 2017 alone, they helped remove 10 million negative items from credit reports.

They offer three service levels:

  • Concord Standard ($89.95 per month): includes bureau challenges and creditor interventions.
  • Concord Premier ($109.95 per month): Concord Standard plus assistance with removing inquiries, monthly credit report coaching, and a detailed score improvement analysis, and TransUnion credit alerts.
  • PremierPlus ($129.95 per month): Concord Premier plus identity fraud alerts and your monthly TransUnion FICO score.

*A first work fee applies to all service levels.

Lexington Law also offers a Friends and Family Discount of 50 percent on the first month of service.

And should you decide that Lexington Law is not a good fit, you may cancel service at any time. However, you will be assessed a final bill for the services rendered since credit repair companies can only collect payment after services are rendered, per the Credit Repair Organizations Act.

Visit Lexington Law or call 1-844-259-3482 to get started

Ovation Credit Repair Services

At a glance:

  • Established 2004
  • A+ Better Business Bureau Rating
  • Free consultation and credit report summary
  • Two plans: $69.00 or $99.00 per month
  • Multiple discounts programs available

Company Overview:

Ovation, a subsidiary of Lending Tree, is another top-notch credit repair company. But what distinguishes them from others are their low price points and a multitude of discount programs, including:

  • Essentials ($69.00 per month): includes support from a professional credit analyst, unlimited bureau disputes, online dispute management, and financial management tools ($99 first work fee applies)
  • Essentials Plus ($99.00 per month): Essentials and unlimited validation and goodwill letters, recommendation or reference letters for future lenders and creditors, and TransUnion credit monitoring ($114 first work fee applies)

Visit Ovation Credit Repair Services or call 1-866-639-3426 to get started.

SkyBlue Credit

At a glance:

  • Established 1989
  • Offers free consultation
  • $69.00 per month
  • Special couples rate of $99 per month

Company Overview:

SkyBlue has been in the credit repair industry for quite some time. Established in 1989, they’ve helped thousands of customers get their credit back on track. And you can get started for a low rate of only $69.00 per month, or $99 if you’re signing up with your significant other.

They boast an unrivaled dispute pace of 15 items per cycle so you can see results quicker. Unlike many other credit repair companies, they also offer assistance with debt validation, debt settlement, and goodwill letters at no additional cost to you.

Other membership perks include:

  • Pro analysis to identify items that should be disputed
  • Credit report analysis and coaching to identify other effective ways to boost your credit score
  • Online portal so you can access your profile 24/7 at the tap of a fingertip

In the event you aren’t satisfied with their services, SkyBlue also offers a 90-day money back guarantee.

Visit SkyBlue Credit or call 1-800-790-0445 to get started.

The Credit Pros

At a glance:

  • Established
  • A+ Better Business Bureau Rating
  • Free consultation available
  • Two plans: $99 per month for individuals ($179 enrollment fee) and $159 per month for couples ($279 enrollment fee)
  • Discounts: couples receive 20 percent off the monthly fee

Company Overview:

The Credit Pros is one of the fastest growing credit repair companies in the industry. They were recently ranked by Inc. Magazine as one of the fastest growing companies over a five-year span and boasts carries an A+ rating with the Better Business Bureau.

Their membership model is simple with a single plan to choose from that is priced at $99 per month ($159 per month for couples). A one-time enrollment fee of $179 ($279 for couples) applies.

Your monthly membership fee includes:

  • Private consultation with a FICO expert
  • Unlimited dispute letters
  • Debt validation letters
  • Goodwill letters
  • Cease and desist letters
  • Digital credit education tools
  • 24/7 access to an online portal that includes your credit score

You should also know that membership is on a month-to-month basis, and you can cancel your service at any time.

Visit The Credit Pros or call (888) 257-5110 to get started.

The Credit People

At a glance:

  • Established 2001
  • Offers free consultation
  • Flat-rate plan with no set-up fee
  • $19 trial for seven days
  • Couples discounts
  • 100 percent money-back guarantee

Company Overview:

With over 15 years of experience, The Credit People has helped more than 100,000 consumers get their credit back on track. And what sets them apart is their unique enrollment process.

Not only do they pull your initial credit reports and scores for free, but they allow you to test drive the service for only $19. If you wish to continue after the free 7-day window, you’ll pay $79 per month and have access to the following member benefits:

  • Unlimited dispute letters
  • Debt validation letter
  • Creditor interventions
  • Toll-free customer support
  • Access to customer dashboard 24/7

But if you’re not satisfied, you cancel without incurring any penalties or fees.

Visit The Credit People or call 1-866-382-3410 to get started.

What is credit repair?

In a nutshell, credit repair is a way to clean up your report and improve your credit score in a much shorter time span than it would take for the negative items to fall off. It’s also an effective remedy for untimely or inaccurate information that should not legally appear on your credit report.

There are two ways that you can go about repairing your credit: DIY credit repair and hiring a credit repair company. But before you select the method that works best for you, it’s wise to understand what’s in your credit report and how your score is calculated. That way, you’ll know how to maintain your credit rating once you’ve raised it from the trenches.

How is your credit score calculated?

Your FICO score, which is used by 90 percent of lenders and creditor to reach a lending decision, is comprised of the following:

Payment history (35 percent)

If you can’t repay your monthly debt obligations, lenders will be reluctant to extend funds to you. And if they do, expect a substantially higher interest rate to hedge against the risk of loss resulting from the default. This is why payment history has the greatest impact on your credit score, to the tune of 35 percent.

Paying a few days past the due date won’t kill your score, but once you reach the 30-day mark, your score could drop by up to 110 points, notes Equifax. In fact, the higher the score before the delinquency, the greater the impact, myFICO adds. And each subsequent month that the account remains in default has even greater negative implications for your account.

In fact, at the 120-day mark, the account is usually turned over to collections. And unfortunately, collection items linger on your credit report for seven years.

Amounts owed (30 percent)

Creditors are also interested in knowing more about how you use the amount of credit available to you, hence the credit utilization ratio. This figure is calculated by dividing the amount of revolving credit in use by the total credit line. So, if the sum of your credit limits is $10,000 and you’re currently using $4,500, your credit utilization is 45 percent.

Ideally, you want to keep this percentage at 30 percent or lower to derive the greatest impact to your credit score. You should also know that installment loans don’t have much bearing on the 30 percent; credit utilization is the most important.

Length of credit history (15 percent)

Your FICO score also considers how long you’ve been managing credit. If you’re a credit newbie, your score could take a slight hit. However, managing other areas of your credit profile, like making timely payments and keeping your outstanding balances low, could offset the negative impact.

Credit Mix (10 percent)

There are two types of credit: revolving (i.e. credit cards) and installment (i.e. mortgages, student loans, auto loans, personal loans). The more experience you have with both, the better, in the eyes of creditors and lenders.

New Accounts (10 percent)

If you thought you could apply for as much credit as you please with no impact to your credit score, think again. Excessive applications in a short window of time make you appear as a greater risk to creditors. Furthermore, it also hurts your score as each application generates a voluntary or hard inquiry, which decreases your credit score by two to five points per occurrence.

The exception to the rule is rate shopping, which allows you to apply with multiple lenders when seeking the best rate on a loan product. As long as you select a product within a set window of time, which varies by debt, your score will only be dinged once.

You should also know that involuntary credit checks done by creditors and lenders to determine if you qualify for pre-screened offers have no impact on your credit score.

Credit repair options

DIY credit repair

It may be tempting to hire a credit repair company. But according to the Federal Trade Commission (FTC), “anything a credit repair company can do legally, you can do for yourself at little or no cost.” So, if you have time on your hands and are comfortable doing the legwork on your work, you could save your hard earned money with DIY credit repair.

Hire a credit repair company

On the other hand, may be best to hire a credit repair company to do the work for you if you’re strapped for time or prefer to let the pros do the work for you.

Credit repair tactics

There are several ways to go about repairing your credit, but you should start by:

  • Step 1: Requesting a free copy of your credit report via AnnualCreditReport.com
  • Step 2: Analyzing the report and circling or highlighting any inaccuracies and negative items.
  • Step 3: Filing formal disputes with the credit bureaus to have errors rectified.
  • Step 4: Determining the most effective way to deal with negative items.
  • Step 5: Repeating steps three and four until you see results.

Filing disputes

By filing a dispute, you’re alerting the credit bureaus that an error or outdated information is on your report. They will then be tasked with contacting the information provider to affirm or refute your claim and must do so and respond to your letter in 30 days or the information will be removed. To get started, follow the guidance found here.

****I plan to link to the future post about credit report disputes here.***

Word of caution: only dispute information that may be unverifiable or is indeed inaccurate. Otherwise, you run the risk of your disputes been classified as frivolous and thrown out.

Also, refrain from filing disputes online if possible. It is a more convenient option, but if the credit bureaus don’t rule in your favor, you can’t redispute the item in question because filing online waives your right to do so.

Dealing with negative items

When dealing with negative items on your credit report, you can use the following tools to help get them removed:

  • Debt Validation Letter (for items under 30 days): request sent to the creditor or collection agency that reported the information asking that they provide proof that you actually owe the debt.
  • Goodwill Adjustments: a written request sent to the creditor or lender asking that they remove the late payment as a courtesy.
  • Pay-for-Delete Agreement: a written agreement entered into by both you and the collection agency that states the negative item account will be removed from your credit report in exchange for payment. This amount could be the total outstanding balance or a lower amount that the collection agency has agreed to accept to settle the account.

Does credit repair take a long time?

Unfortunately, it only takes seconds to ruin your credit. But bringing it back up to par is another story. So, while you may see quick results if you have a ton of unverifiable errors or outdated information on your credit report, negative, verifiable items could be much harder to remove.

It depends on how aggressive you are with your approach and if the creditors are willing to work with you. Asking the creditor to verify the item and not getting a response may be enough to yield the results you’re looking for, but keep in mind that it doesn’t always work that way and you may have to do a little more legwork to get those negative items removed.

Should you hire a credit repair company?

If you’re still on the fence about hiring a credit repair company, here are some key benefits to consider:

  • You’ll have a peace of mind when you apply for credit. As credit repair companies work diligently to remove negative items from your report and are successful, your score will start to improve. This means better approval odds for you. In other words, you won’t have to freak out or fight off sweaty palms each time you apply for credit because you fear rejection.
  • You’ll have access to more affordable debt and credit products. A higher credit score also means you can ditch payday and no credit check loans for more cost-efficient offerings.
  • Cost savings from lower interest rates. This can be attributed to better deals on financing.
  • Less legwork for you. The professionals handle everything from start to finish if you’re too busy or don’t understand how credit repair works. But you have to keep them updated or in the loop regarding changes to your credit profile and written correspondence.
  • Credit education. Most providers offer credit education services, like coaching and tools, to help you figure out the credit maze once and for all.

Cleaning up credit reports could help you qualify for lower insurance premiums or land that dream job or avoid hefty security deposits (because if it seems like credit follows you everywhere you go, you’re right. It does. In fact, it impacts almost every area of your life and not just your finances).

And if you’re worried about the monthly fee, it’s probably far less substantial than what you’d pay in interest. That alone is enough to justify the cost of credit repair.

Does credit repair really work?

The short answer: yes, particularly for inaccurate, questionable, or untimely information because the burden of proof is on the creditor or information servicer. However, services are not guaranteed to work and don’t expect accurate, timely, and verifiable information to vanish into thin air.

The bottom line

Depending on what’s in your credit report, credit repair may be more so of a marathon than a sprint. But if you’re willing to hire a company that is persistent and committed to getting your results or even take the DIY approach, your efforts will pay off in due time.

How to Remove Collections from Your Credit Report

Are you looking to repair your credit but don’t quite know how to handle those unpleasant collection accounts sitting on your credit report?

Working with collection agencies to resolve the issue can be difficult if you don’t take the proper steps. And even if you decide to pay the balance in hopes that it’ll go away, you may be surprised later on down the line when you realize your score doesn’t improve.

Let’s take a closer look at how collection accounts work, the impact they have on your credit score, and what you can do to have them removed. We’ll also discuss how to handle medical collection accounts.

What are collection accounts?

Collection accounts appear on your credit report once a creditor or lender determines that they probably won’t be able to collect on the past due amount owed. While they take a financial hit, the creditor or lender is allowed to take a loss and can write this amount off on their tax return.

Unfortunately, this is bad news for you as your score will more than likely tank, possibly by up to 100 points. In addition, you may be forced to deal with aggressive debt collectors who are anxious to sap your hard earned money from your wallet.

Wondering what types of collection accounts are most common? They include:

  • Utility accounts (i.e. water, sewage, electricity, gas, trash)
  • Cable accounts
  • Cell phone accounts
  • Credit card accounts

So, if you relocate and forget to pay the final cable or utility bill, don’t be surprised if a collection account shows up on your credit report. The same rule applies for cell phone and credit card accounts that are closed with an unpaid balance that the service provider or credit card issuer deems uncollectible.

How do collection accounts impact your credit score?

Thanks to updates made to the FICO scoring model, unpaid and paid collections no longer impact your credit score the same. Under FICO 8 and VantageScore 3.0, the only major benefit to paying off a collection account was the status update. It communicated to prospective creditors and lenders that you had paid the outstanding amount in full or settled the account for an amount that was acceptable to both parties. However, the negative effect on your score lingered.

But under FICO 9 or VantageScore 4.0, paid collection accounts are not considered in credit scoring. This is a major benefit because you no longer have to worry about an old or small collection account dragging your score down, even after you’ve taken care of it.

How long do collection accounts stay on your credit report?

Collection accounts are reflected on your credit report for seven years. And unfortunately, paying it off won’t make it go away. Instead, the collection agency will simply update the status to paid in full or settled.

But as mentioned before, FICO 9 and VantageScore 4.0 overlook paid collection accounts, so your score won’t take a hit if the lender uses this model.

Reporting timeline vs. statute of limitations

It’s important to understand the difference between the reporting timeline and statute of limitations when dealing with collections. While the creditor can report the account for up to seven years, they are limited on the time in which they can sue you for the delinquency. This is referred to as the statute of limitations and varies by state.

The statute of limitations in some states is four years, according to NOLO. But you may find that this period is much longer in your state of residence.

What’s the easiest way to have collection accounts removed from your credit report?

Because lenders are starting to adopt FICO 9, it may be in your best interest to pay the outstanding collection account so it won’t continue to impact your credit score. But what if you can’t afford to do so?

Or maybe you need to have the collection account removed to qualify for a debt product with a lender that hasn’t yet adopted FICO 9?

Ask the collection agency to validate the debt

Is the collection account listed with more than one collection agency? If so, there’s a high possibility the file has been passed around and is missing the adequate documentation from the creditor to prove that you actually owe the debt.

For this reason, you should submit debt validation letters to the collection agencies. You can do so by filing a dispute with each of the credit bureaus to ensure you get a response within 30 days. If they don’t respond to your request, the item must be removed from your credit report.

Negotiate a pay-for-deletion

What happens if the collection agency can actually validate the debt? The next step is to request a pay-for-deletion. In a nutshell, this arrangement states that the information provider (or collection agency) will remove the account from your credit report in exchange for payment.

These types of arrangements are becoming less common, so you’ll have to be more persistent. But don’t be fooled into thinking it can’t be done. Collection agencies will tell you that it’s against the rule to remove the mark, but it’s not as they’re the ones who reported the account to the credit bureaus in the first place.

Also, be sure to get the arrangement in writing to ensure the collection agency follows through on their promise. Otherwise, you’ll be left with less cash and a negative mark on your report.

Hire a reputable credit repair company

Some collection accounts are much trickier to deal with than others. And if you aren’t knowledgeable of credit repair and how it works, it may be in your best interest to leave the work to the professionals.

For a monthly fee, they can handle the entire process from start to finish. They can also work with you to have collection accounts removed if they are questionable or being reported incorrectly. Best of all, you can get started with most credit repair companies without forking over any money because they offer free consultations to explain the ways in which they can help you.

Dealing with medical collections

Are medical collections dragging your credit score down? Fortunately, the damage is not as significant under FICO 9. And once these accounts are paid off, they no longer impact your FICO score.

While you’ll have to take the same steps as listed above to have medical collections removed from your credit report, the good news is a new rule makes it much more difficult for accounts to be reported in the first place.

In fact, service providers have to wait for at least 180 days before the account can be placed on your credit report. And in the event your insurance company decides to pay the bill after the fact, the collection accounts must be removed, notes Times.

This is a major plus for consumers for two primary reasons. First, it gives them more time to enter into a payment arrangement with the medical provider. It also leaves an ample amount of time for the insurance claims processing to be completed.

The bottom line

Credit reports without collection accounts are much more appealing in the eyes of creditors and lenders. But if what you’re looking for is a higher credit score, paying or settling the account may be enough to yield results if the lender has adopted the updated FICO 9 or Vantage 4.0 credit scoring model.

Either way, by being diligent and doing the legwork, you can get the collection account removed or pay the balance to give your credit score a boost.

How to Remove Late Payments from Your Credit Report

Life happened and you couldn’t make your credit card payments on time. Or maybe you got behind on your car note, student loans, or mortgage. Either way, the late payments are on your credit report and they’re dragging your score down.

Even if you’ve gotten back on track, it will still take some time for your score to revert back to what it was. The good news is it’s possible to have late payments from your credit report if you take the proper actions.

Read on to learn more.

How soon are late payments reported to the credit bureaus?

If you miss the due date on a credit card or loan by a few days, it’s not the end of the world. But once the account becomes delinquent by 30 days, a late payment fee isn’t the only thing you have to worry about.

The lender or creditor may choose to report it to the credit bureaus. And they will continue to do so at the 60, 90, and 120-day mark until the account is ultimately charged-off as a bad debt.

However, some lenders may be lenient with their reporting and wait until the account is 60 or 90 days delinquent update the status with the credit bureaus. This isn’t necessarily a bad thing as you’ll have more time to bring the account current before damage is done to your credit score. However, the impact of a 60 or 90-day late payment could be more detrimental.

How does a late payment impact your credit score?

Your FICO score is comprised of the following components:

  • Payment History: 35 percent of your FICO score
  • Amounts Owed: 30 percent of your FICO score
  • Length of Credit History: 15 percent of your FICO score
  • Credit Mix (i.e. revolving and installment loans): 10 percent of your FICO score
  • New Credit (i.e. applications for credit): 10 percent of your FICO score

Since payment history has the greatest impact, all it takes is one late payment to tank your credit score. And it doesn’t matter if it’s a minimum credit card payment of $25 or auto loan payment of $250.

According to Equifax, one late payment can reduce your score by up to 110 points. And the higher your score was before the late payment was reported, the greater the impact.

Furthermore, if the account continues to remain in a delinquent status, the impact to your score will be even greater. In fact, a late payment of 60 or 90 days can be as damaging to your score as a collection account or charge-off.

How long does a late payment stay on your credit report?

Late payments remain on your credit report for seven years. But the impact will start to dwindle over time. The good news is you don’t have to sit around with your fingers crossed desperately waiting for the day for your score to rise. There are ways you can have late payments removed before the seven-year mark.

What’s the easiest way to have a late payment removed from your credit report?

It’s possible to have a late payment removed from your credit report, and there are several ways to do so. However, there is not a one-size-fits-all approach when doing so. Instead, you have to consider the following:

  • Was the late payment reported in error?
  • Was it a one-time occurrence resulting from an oversight or technical issue?
  • Are there several late payments across the board that you want to have removed?

Your answer to these responses will determine the best course of action to increase your odds of having the late payments) removed.

File a formal dispute

Creditors and lenders deal with millions of accounts on a daily basis, so errors are bound to happen. If you’ve never made a late payment but the creditor reported otherwise, you’ll need to file a formal dispute with the credit bureaus to have it removed.

This will force the creditor to conduct research and ultimately discover that your payment was on time. And they will update your records to reflect the accurate payment history.

You can also try disputing the late payment, even if you know it’s being accurately reported, to see if the creditor will bother responding. There’s always a chance they won’t bother to respond within the 30-day window mandated by law and the negative entry will be removed. While this is a longshot, it could actually work in your favor if the other methods listed below don’t quite pan out for you after several attempts.

Request a goodwill adjustment

Did the account fall behind due to sheer oversight? Or maybe you thought you made the payment but discovered it was never processed once the account popped up as delinquent on your credit report a month or so later? On the other hand, you could have been in the midst of a rough financial patch that made remitting a timely payment practically impossible?

Regardless of your reasoning for being late, you have a good chance of having the item removed if it was a one-time occurrence. Simply reach out to the creditor, plead your case, and request a goodwill adjustment. This can be done on the phone or in writing, but the latter is preferred so you’ll have a paper trail.

When pleading your case, be as specific as possible. Explain that this is out of the ordinary and highlight the fact that you’ve been a responsible customer for quite some time. Also, be prepared to move up the ladder if your request is rejected.

You can also strengthen the odds of having your request approved by asking to enroll in auto-pay. Doing so not only ensures that history won’t repeat itself on your end, but provides the creditor reassurance that it was an error on unusual occurrence on your part and that you’re committed to making timely payments going forward.

Hire a reputable credit repair company?

Would it be easier to let a professional do the work for you? If so, consider hiring a reputable credit repair company to get the results you’re looking for. (insert link to “Best Credit Repair Companies of 2018”)

There are many options out there that offer free consultations, low monthly rates, and month-to-month contracts with no cancellation penalties. While you may be hesitant to invest in credit repair services, the investment is substantially lower than what you could find yourself paying in interest due to your subpar credit score.

The bottom line

Whether you decide to take matters into your own hands or hire a credit repair company, your credit score will benefit greatly from having late payments removed from your credit report. Plus, you’ll have a peace of mind knowing that those mistakes or financial hardships are behind you as you continue working towards attaining a stellar credit rating.

How to Remove a Charge-Off from Your Credit Report

Have you recently applied for credit, only to get turned down because of a charge-off that’s dragging your score down? Or maybe you recently reviewed your credit report and realized that a charge-off was there that you had no knowledge of beforehand. Either way, you want it removed promptly because it’s tainting your report, keeping your credit score in the trenches, and preventing you from qualifying for the most competitive financing offers on the market.

Keep reading to learn how charge-offs come about, how they impact your credit score over time, and what steps are needed to get them emoved from your credit report.

What is a charge-off?

A charge-off is reported on your credit report once an account reaches 180-days delinquent. This is also the point at which the creditor writes it off their books as a bad debt and turns it over to a collection agency.

Although the creditor or lender takes a hit to their books, they write the bad debt off to derive two key benefits:

  • The ability to write the outstanding amount off as a loss on their books
  • The possibility of still being paid, even if it’s only a portion of what they’re owed, after the account is written off

How does a charge-off impact your credit score?

Charge-offs can do major damage to your credit profile. Since they are one of the most impactful items that can appear on your credit report, your scores may plummet significantly.

Not only will a charge-off tank your score, but you may also find it harder to qualify for credit cards and loan products. And the products you do qualify for will more than likely be accompanied by exorbitant interest rates and less favorable financing terms.

Does paying off a charge-off boost your credit score?

Unfortunately, paying a charge-off will not make it magically disappear from your credit report. Instead, the creditor will update the status to paid in full or settled, and the account will remain until the seven-year window lapses. This also means it will continue to negatively impact your score until the negative entry is removed.

However, the older the charge-off, the smaller the impact on your credit score. But if you can get the creditor to delete the negative entry in exchange for payment, your score may increase. More on that shortly.

Should you pay charge-offs on your credit report?

It depends. If the creditor won’t agree to a pay-for-deletion or you’re close to the seven-year window being up, it may be worthwhile to wait it out. However, there are cases in which it may be a good idea to pay charge-offs on your credit report.

The case for paying charge-offs

Although your credit score may not skyrocket overnight, paying charge-offs could increase your approval odds for debt products by making you look more favorable in the eyes of creditors. In other words, you may be able to plead your case for being approved by explaining that you went through a rough patch but have taken the necessary actions to take care of past outstanding obligations.

Furthermore, paying the charge-off demonstrates that you have assumed responsibility for the financial misstep and are committing to better managing your finances in the future.

A few more key reasons for paying charge-offs:

  • The creditor has agreed to a pay-for-deletion, which means they will delete the account altogether once they have received the total outstanding amount in full or the settlement amount agreed on. (Note: always get these agreements in writing or you may find yourself chasing the collection agency or creditor after the fact to make them follow through on their promise. Also, keep in mind that their primary concern is collecting what’s owed and they’ll play nice guy until that’s done. So, it’s best to think a step or two ahead and cover your tracks with a paper trail).
  • You’re trying to buy a home and the mortgage company won’t approve the application until the charge-off is taken care of. You may be able to retrieve a preapproval for a new home purchase with an unpaid charge-off present on your credit report. But getting the loan closed with it still on your report will be practically impossible as most mortgage companies play by this rule. So, you should call and offer to settle the account so the status of the charge-off can be updated on your credit report.

But before remitting payment, contact the information furnisher and ask that they provide proof that you actually owe the debt. Remember, the credit bureaus must respond to your request or the item must be deleted. And if the charge-off is not yours, file a formal dispute to have it removed.

The case against paying charge-offs

There are instances where you know you owe on a particular account that has been charged-off, but it may not be in your best interest to remit payment. Most importantly, if the statute of limitations has passed and the debt is no longer legally collectible, don’t bother paying it. Instead, file a dispute with the credit bureaus to have it removed.

Some additional reasons to not pay charge-offs:

  • The corresponding information listed on your credit report contains inaccuracies. Creditors and collection agencies can’t just report whatever information they want on your credit file and expect you to pay it. Per the Fair Credit Reporting Act, the contents must be complete, accurate, and verifiable, or it must be corrected deleted. And more often than not, you may find that all it takes is a dispute for the charge-off to be deleted because the collection agency does not have the proper documentation on hand to verify the debt.
  • The charge-off appears multiple times on your credit report. Imagine if you paid the charge-off through one of the five collection agencies listed on your credit report, only to find out that you still owe the money. This is not uncommon as old debts are sometimes sold over and over without the paper trail to prove you actually owe it. So, paying it off only makes the situation worse as you’ll be out of your hard earned cash and still feel the wrath of the charge-off on your credit report.

What’s the easiest way to have a charge-off removed from your credit report?

When dealing with charge-offs, there are three ideal ways to go about getting them removed.

File a formal dispute with the credit bureaus

If it’s an error, dispute it as such. But what if the charge-off doesn’t belong to you? Simply dispute it using the information found here (this hyperlink will accompany a future post titled “Credit Dispute Letters”). Problem solved.

You can also give a formal dispute a shot if the debt has been passed from collection agency to collection agency and you feel there’s a chance they don’t have the proper documentation to prove you actually owe it.

Work directly with the collection agency

The first step is to reach out and have them send you documentation proving you owe the debt. Next, request that they delete the account from your credit report in exchange for payment through a pay-for-deletion arrangement.

It may take a few tries, but it’s well worth the effort. But be sure to get the agreement signed and in writing.

Hire a reputable credit repair company

Prefer to let the professionals handle the legwork for you? If so, hire a reputable credit repair company and they will work on your behalf to get the charge-off removed sooner than later. Though there are no guarantees on the timeframe or if they’ll even get results, the likelihood of success is much higher considering they’re seasoned, trained professionals that are well-versed in dealing with charge-offs.

The bottom line

The presence of a charge-off on your credit report is not the end of the world. And by taking the proper steps or hiring a reputable credit repair company, you can have it removed sooner than later.

Best Credit Monitoring Services

Worried about the impact a data breach or case of identity theft could have on your credit report and score? Enrolling in a credit monitoring service is an option to stay on top of your credit profile. It can also help minimize your losses if your personal information is compromised.

But what exactly is a credit monitoring service, and how do you find a provider? And is it worth the investment, or can you perform the same services on your own?

Read on to learn the answers to these questions and explore what the top providers have to offer.

What is credit monitoring?

Credit monitoring services keep a close watch on your credit profile around the clock. And if any changes occur, you’re alerted right away. This could include any of the following:

  • Changes to your identifying information, like your address and employer
  • Credit score increases and decreases
  • New accounts
  • New authorized users
  • Payment activity
  • Changes to existing accounts, including balance and credit line increases or decreases
  • Account activity on dormant accounts
  • New hard inquiries resulting from applications for credit
  • New public record and collection accounts
  • Status updates for public record and collection accounts, along with bankruptcies
  • Dark web updates about your Social Security number

These services also monitor banking, credit card, and other personal information. Some credit monitoring packages also include identity theft monitoring and protection features.

How to choose a credit monitoring service provider

There are several service providers to choose from. When evaluating your options, here are some features you want to be on the lookout for:

  • Monitors credit data from all three bureaus (Equifax, Experian, and TransUnion)
  • Monitors the web to ensure banking credit card, and other personal information, including your Social Security number, isn’t compromised
  • Facilitates credit card account disputes resulting from theft
  • Provides assistance in the event your identity is compromised, including the filing of police reports, placing fraud alerts, notifying the Federal Trade Commission (FTC), and working with the creditor to close fraudulent accounts.
  • Includes identity theft insurance to minimize your losses if you’re victimized by fraud
  • Offers free copies of credit reports and assists with the filing of disputes with credit bureaus.

Below is a list of reputable providers in the next section to help you get started with your search.

Best credit monitoring services

Equifax 3-in-1 Monitoring with 4 FICO Scores

For only $14.95 per month, you can have a peace of mind knowing your credit data from the three bureaus is being monitored 24/7. As a subscriber, you’ll receive updates on any changes to your credit profiles within 24 hours. And if you’ve been victimized by identity theft, you can take advantage of the Automatic Fraud Alerts feature. This feature automatically places a fraud alert on your credit file at Equifax, sends requests for fraud alerts to Experian and TransUnion, and renews alerts and resubmits requests quarterly.

This service also grants you access to four variations of your FICO score and corresponding reports on a monthly basis. There’s no monthly contract and your subscription can be canceled at any time.

Visit Equifax

Experian

Experian offers credit monitoring and identity theft insurance as a combo deal through their CreditWorks plan. As a member, you’ll receive instant alerts anytime activity occurs in your credit profiles at each of the three credit bureaus. Your membership also includes up to $1 million in identity theft insurance coverage in the event your identity is compromised.

Other member perks include monthly credit reports and score updates, along with the ability to lock your Experian profile at the tap of a fingertip to avoid unwanted access to your credit report.

One of the best features of the service is the ability to view a new credit report and FICO Score 8 from Experian daily on the dashboard. You’ll also be able to view your credit reports and scores from Equifax and TransUnion, but they are updated every 30 days. Experian also keeps historic credit reports and scores on file from Equifax and TransUnion, so you can go back and view data from prior months as long as you’re a member. This service also includes assistance with credit and fraud related issues.

The monthly subscription fee is $24.99, but Experian lets you try out the service for only $4.99 during the first month. And if you wish to unsubscribe, you can cancel without incurring a penalty.

Visit Experian

TransUnion

Similar to Experian, TransUnion’s credit monitoring service provides instant alerts and offers up to $1 million in identity theft insurance coverage. Your monthly subscription, which comes at a cost of $19.99, also includes tools to help you boost your score. Even better, there are representatives standing by to assist should your identity be compromised.

However, this service does not monitor your Equifax or Experian credit profiles. For this reason, you may want to forgo this service in favor of a more comprehensive option. But you can view your Equifax credit report on a monthly basis.

Visit TransUnion

Identity Force

Identity Force offers two membership plans, UltraSecure and UltraSecure+Credit, to choose from. Both plans help protect you against identity theft and come with a $1 million identity theft insurance policy. However, the UltraSecure+Credit also includes 3-bureau credit monitoring along with access to your credit reports and scores. You can also track your credit score over time from the dashboard or use the simulator to determine how certain actions could help or hurt your score.

This service is $23.95 per month, or you could pay in full for the year and get two months free ($239.50).

Visit Identity Force

myFICO

myFICO allows you to access your FICO scores and receive ongoing credit reports through their credit monitoring services. Their offerings are as follows:

  • FICO Basics 1B ($19.95 per month or $219 for the year): includes Experian credit monitoring, monthly Experian score and report updates, lost wallet protection, and $1 million in identity theft insurance
  • FICO Ultimate 3B ($29.95 per month or $329 for the year): includes three bureau credit monitoring, quarterly score and report updates, identity theft monitoring, lost wallet protection, and $1 million in identity theft insurance

Visit myFICO

LifeLock

LifeLock is arguably one of the top identity theft protection providers in the industry. But they’ve also coupled credit monitoring services with their offerings and packaged them into three plans that are designed for every budget.

All plans include the Million Dollar Protection Package, identity theft alerts, and compensation for stolen funds, personal expenses, and lawyer fees. However, the credit monitoring services vary by plan, as detailed below:

  • Standard Plan ($9.99 per month): includes credit monitoring from Equifax
  • Advantage Plan ($19.99 per month): includes credit monitoring and a copy of your annual credit report and score from Equifax
  • Ultimate Plus ($29.99 per month): includes credit monitoring and a copy of your annual credit report and score from the three credit bureaus, along with monthly credit score tracking from Equifax

Visit LifeLock

Is credit monitoring worth it?

While you can monitor your own credit for free, credit monitoring may be a smart investment. Given the increasing number of large-scale system hacks and fraudulent activity occurring on the web, credit monitoring will keep watch over your credit profile when you can’t. That means you won’t have to wait several days or even months to realize that a scammer has hijacked your personal information, opened fraudulent credit cards in your name, and destroyed your credit.

If you’ve been victimized by fraud or identity theft, credit monitoring could also give you an added layer of protection and peace of mind. You’ll have the credit monitoring service as an extra set of eyes.

Another reason to invest in credit monitoring is if you don’t want to deal with security freezes. They’re a great way to protect your credit profile from being compromised, but require you to initiate a request for it to be lifted at each bureau each time you wish to apply for credit. But if you purchase credit monitoring, you won’t have to go through all the hassle because the service will alert you anytime there’s activity in your profile.

But keep in mind that credit monitoring doesn’t necessarily prevent fraud. It just gives you the heads up that your information has been accessed so you can act swiftly before too much damage is done.

The bottom line

Credit monitoring service is an ideal way to stay on top of the activity that occurs in your credit profiles at Equifax, Experian, and TransUnion. And in the event issues arise, you’ll have assistance to find resolutions in the most timely manner possible.

Understanding Bankruptcy Dismissal: Why it happens and what to do

After years of dealing with debt, seeking advice from debt counselors and making the tough decision to declare bankruptcy, the last thing that you want to happen is to have your case tossed by the courts.

But that’s exactly what happens for hundreds of Americans each year when their case is dismissed. It’s not just hours of paperwork that goes down the drain, either. Debt collectors will be able to come after you as soon as your case is dismissed, and delinquencies and late fees will start to mount once more.

Don’t be one of the applicants that have their case tossed. By taking the time to read this guide to understand why bankruptcy dismissal happens, you can take the necessary steps to prevent it from happening to you.

Why does bankruptcy dismissal occur?

It is all too easy to make mistakes when filing for bankruptcy. The process is incredibly complicated with dozens of forms to fill in and hoops to jump through. Combine that with the stress of your financial situation, and it’s easy to see how your application can go awry. Mistakes aren’t the only cause for dismissal though. Misrepresenting your situation, such as pretending you have more debt than you do, can also lead to a judge tossing your case. As can all of the following reasons:

  • Failure to comply with or attend the court
  • Not completing credit counseling
  • Late or inaccurate filing
  • Fraud
  • Failure to pay the associated fees
  • Prior instances of dismissal or discharge
  • Violating court procedure
  • Lack of documentation
  • Failure to adhere to a Chapter 13 payment plan
  • Failing of means tests

Types of bankruptcy dismissal

There are three types of dismissal in total: voluntary dismissal, dismissal without prejudice and dismissal with prejudice. It is important to know the difference as the way in which your case is dismissed can have a significant impact on your ability to file again.

Voluntary dismissal

You can dismiss your case yourself if you wish. This typically happens when you find the means to pay your debts and would rather do that than go through with bankruptcy. This request isn’t always granted, however. And if you change your mind again after your case was dismissed, reapplying can be very difficult.

Dismissal without prejudice

If you commit an honest mistake on your application or some unforeseen circumstance causes your cause to be tossed, it is dismissed without prejudice. The good news is that you can file another petition immediately but doing so within a year will limit the automatic stay against debt collectors to 30 days.

Dismissal with prejudice

Trying to cheat or game the system will result in dismissal with prejudice. You will have to wait a predetermined period, typically six months, before filing again and, in some cases, debts existing at the time of your first filing may not be eligible for discharge.

What happens after a dismissal?

Bankruptcy dismissal puts you in the same situation as you were in immediately before filing, and this can be devastating for several reasons.

Firstly, all of the time, money, and effort that you spent preparing and filing your case is irretrievably lost. This includes all of the fees you paid to your lawyer and to the courts. Your financial situation will likely worsen, too. Not only will your debts remain with you and continue to grow, but an application to file for bankruptcy will remain on your credit score and can affect your rating.

Debt collectors will also be able to come after you again with the full backing of the law. That’s because the stay against creditors that you were granted when applying for bankruptcy is lifted the second your case is tossed meaning you can face foreclosure, lawsuits, and repossession.

What should you do after a dismissal?

There is a chance to get your case reinstated if it was dismissed without prejudice, but you must act quickly. At first, dismissals are rarely final, and courts typically provide a small window of time where you can continue to plead your case or put forward a motion to reconsider. By putting forward this motion, you will also need to rectify the reason for the dismissal.

When the motion to dismiss is final, you can either appeal or pay to file a new case immediately as long as your case was dismissed without prejudice. If it was dismissed with prejudice, however, you will need to wait six months before applying again.

How to avoid dismissal

If you are honest, there is no reason, apart from human error, for your case to get dismissed. As such, one of the best things you can do is to invest your remaining money into a successful bankruptcy lawyer. Not only will they file the paperwork on your behalf, but a good lawyer will also make sure that you meet all of the eligibility criteria for bankruptcy before applying and that there are no other factors that could lead your case to be dismissed.

Chapter 13 Bankruptcy FAQs: Everything you need to know

Chapter 13 may not be everyone’s first choice when it comes to bankruptcy, but that doesn’t mean it can’t be an effective way of clearing your debts. The trick is to know enough to make the most out of the opportunity that bankruptcy gives you. If you aren’t clear on the complexities of Chapter 13 bankruptcy or have a particular question about the process, you’ll find the answer in this FAQ.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows eligible debtors to retain all of their assets while providing them with a three to five year grace period to pay off outstanding debts. After this period, all remaining eligible debt is discharged.

Naturally, there are strict rules which govern how debt is repaid under Chapter 13. You must pay all secured and priority debt such as your mortgage and alimony payments in full. You must also make payments that are more than or equal to the total value of your assets. So if you have assets totaling $200,000, you must repay at least $200,000 worth of debt over the three to five year period. To be clear, the repayment period will be five years unless you earn under your state’s median monthly income, in which case it may be shorted to three years.

Who is eligible for Chapter 13?

More people are eligible for Chapter 13 than they are for Chapter 7. That’s because you do not have to pass a means test, but there are still rules governing who can apply. In particular, your secured debts cannot exceed $1,081,400 and your unsecured debts cannot exceed $360,475.

What is the process of Chapter 13?

Like Chapter 7 bankruptcy, you will need to file a petition with your local federal bankruptcy court that will include filing several forms and paying the necessary fee.

Once your case has been filed, you will need to suggest a repayment plan that will be assessed by your case’s trustee and your creditors, and either approved or rejected. If approved, you will begin the payment plan immediately and the money you pay in each month will be distributed between your creditors. Any unsecured debts that remain after the repayment plan has been completed are discharged.

The Chapter 13 process is considerably longer than Chapter 7, and you will have responsibilities until your repayment plan has ended.

What responsibilities do you have during Chapter 13?

Over the course of your three to five year grace period, you will have to comply with a number of requirements to remain eligible for Chapter 13, these include:

  • Sending all creditors a note of your bankruptcy
  • Paying all secured debt off during your repayment plan
  • Repaying priority debts in full
  • Making payments to your trustee every month
  • Not incurring significant new debt
  • Updating your trustee with annual tax returns and expected changes in income
  • Getting court approval for any new loan or for buying, selling, and refinancing your home

Should you not adhere to these responsibilities, you risk your case being dismissed and the stay against your debtors being lifted.

What are the fees for Chapter 13?

You must pay several fees when filing for Chapter 13 bankruptcy, including:

  • A $274 filing fee
  • A trustee’s fee which is equal to 10% of the total repayments under the plan. So if you repay $10,000, there is a trustee’s fee of $1,000
  • Attorney fees if applicable.

Do you need an attorney?

While you can petition for Chapter 13 bankruptcy yourself, it is recommended that you seek professional help from a bankruptcy attorney. Yes, a lawyer can be expensive, but they are almost always worth the money since they can ensure that your bankruptcy goes smoothly and that you pay back as little debt as possible.

What’s more, an attorney will handle all of the paperwork relating to your case and take on responsibility for correctly filing your statements. This means that they become liable for mistakes and you can seek damages from them should your case get dismissed.

Will Chapter 13 bankruptcy impact my credit score?

Yes, Chapter 13 will be listed on your credit score for seven years and cause your score to drop by around 200 points. This can make it impossible to access credit for at least a couple of years. You will then find that interest rates will be incredibly high and lines of credit very low when you eventually do get access. Obtaining a mortgage is also likely to be impossible for the duration of your repayment plan and possibly for several years after.

The good news is that the impact of bankruptcy on your credit score is diminished with time and it is possible to rebuild your credit score to a good level after the repayment period has ended.

What happens if I can’t make the monthly payments?

There may be cases such as a significant change in income or large unavoidable expenses that leave you unable to pay your monthly payments. Should this happen, your lawyer will need to file a moratorium which will be subject to approval by your trustee. In most cases, your repayment plan will be lengthened to make up for any temporary setbacks.

Things are different if you are suffering a long-term financial setback. In this case, you will need to apply for a modification and possible a hardship discharge. If the impact on your finances is so big that you qualify for Chapter 7 bankruptcy, you may even be able to convert your bankruptcy and have outstanding debts discharged. Alternatively, you can voluntarily dismiss your current bankruptcy and file a new one with better repayment terms.

How can I know if Chapter 13 is right for me?

Having read this FAQ, you should have a stronger understanding of how Chapter 13 bankruptcy works and the impact it can have both on your finances and your future. If you’re still confused, speaking to a credit counselor should be your next step. These professionals can show you the alternatives to bankruptcy and help you decide what is the right move for you. Ultimately, it is your decision. While you should be guided by expert advice, you should not be led by the opinions of friends and family. Although there is a stigma surrounding bankruptcy, it can be the fresh start that many people need.

Should I File For Bankruptcy?

It’s a decision that can change your life. Declaring bankruptcy and opting for a fresh start can lift the weight from your shoulders, but it comes with a price. On the other hand, you can soldier on trying to pay off your debt but risk falling further and further behind with payments. Family members will have opinions on your financial situation and so will friends. But ultimately the only decision that matters is your own.

If you are deciding whether bankruptcy is right for you, we are here to help. This guide and the rest of the content on our website will provide you with everything you need to know about bankruptcy, how it works and what to expect. The choice is still yours, but this guide can help you make as informed a decision as possible.

Understanding bankruptcy

The first step in filing for bankruptcy is understanding how the system works. Under the Bankruptcy Code, individuals have two choices—Chapter 7 and Chapter 13. Which one you choose will depend on your financial situation, any assets you wish to keep, and whether you want your debts to be resolved quickly or over several years. We have dedicated guides to both Chapter 7 bankruptcy and Chapter 13 bankruptcy, but you can find an overview of each below.

Chapter 7

Chapter 7 is a straight or liquidation bankruptcy that will wipe out your debts over a three to six month period. All of your assets (your house, your car, your company, etc.) are liquidated and the cash raised is distributed to your creditors to pay off as much of your debt as possible. Chapter 7 isn’t available to everyone, however. To be eligible for Chapter 7 you must have income less than or equal to your state’s median income, or pass the Chapter 7 means test.

Chapter 13

Chapter 13 is a reorganization bankruptcy that resolves your debts over several years. You are allowed to keep your assets on the condition that you pay creditors an amount that is at least equal to the value of your assets over a period of three to five years. This may seem challenging, but anything not paid off is automatically discharged. Chapter 13 bankruptcy is much easier to qualify for, too. You’ll need to prove that you can meet a repayment plan, obviously, and your debts can’t extend into the millions of dollars. Apart from that, you should be eligible.

Reasons to file for bankruptcy

There are many reasons to file bankruptcy and some are better than others. Wanting to avoid paying your student loan is not a good reason, for instance, but all of the following are:

  • Your wages are being garnished. Filing for bankruptcy can stop wage garnishment and can even get back some of the money you have paid.
  • You have unpaid medical bills. Bankruptcy can give you time to repay medical bills not covered by insurance or discharge them completely.
  • You own no or few assets. You can only file for Chapter 13 bankruptcy if your assets don’t cover your debts. If so, you may be able to file for bankruptcy and keep them.
  • You have been sued. Filing for bankruptcy can stop plaintiffs from obtaining judgments against you.
  • You have cut back, worked multiple jobs and still can’t cope. If your debt is still mounting despite doing your best to pay it off, bankruptcy can stop debt from escalating out of control.
  • Your home is in danger of foreclosure. A bankruptcy’s automatic stay can stop or delay the foreclosure process.
  • You are using retirement savings to pay off bills. Your 401K and other retirement savings can’t be touched by bankruptcy so you should declare immediately.

To be clear, not every kind of debt can or should be solved with bankruptcy. As we will discover later, some debts like child support don’t qualify for bankruptcy. It also isn’t worth declaring bankruptcy to clear small amounts of unsecured debt or if you have no assets and no income. In both circumstances, it is unlikely that they will be able to make you pay quickly, even if they sue you.

Other solutions to consider

Bankruptcy isn’t your only option if you are struggling with debt, in fact, it should be your last resort. Try some of the solutions listed below before committing to bankruptcy.

Earning more or cutting expenses

It’s nobody’s dream to take on a second or even a third job, but if doing so means you don’t have to file bankruptcy it’s a no-brainer. Similarly, you should try reducing your outgoings and sticking to a budget before deciding that you can’t pay off debts.

Negotiate with your creditors

By filing for bankruptcy, there’s a chance your creditors won’t get the full amount they are owed. Knowing that, they may be willing to negotiate a settlement.

Seek professional advice

If you can’t or won’t try to get a settlement yourself, a professional credit counselor may be able to help. These experts know the right things to say to creditors and can reduce interest rates even if they can’t settle. If you are planning on filing for Chapter 7 bankruptcy you will have to get credit counseling before you can file in court, so you may as well start today.

Do you and your debts qualify for bankruptcy?

One of the great myths of bankruptcy is that it wipes out all debts. It doesn’t. The debts below are called priority obligations and can’t be wiped out:

  • Student loans
  • Child support
  • Alimony
  • Court fines
  • Income tax debt

If you were thinking of declaring bankruptcy to discharge any of these debts, speak to a credit counselor or try one of the alternative solutions listed above.

How to avoid having your case dismissed

Dismissal occurs when a judge or trustee tosses out your bankruptcy case. It can happen for many reasons that we detail in our post on bankruptcy dismissal, but most occur because of incorrectly filed paperwork or because individuals try to cheat the system.

The best and easiest way to avoid your case getting dismissed is to hire a bankruptcy solicitor. Not only will they handle the paperwork on your behalf—and take liability for doing so correctly—they can also advise on the right type of bankruptcy for you and the obligations that it entails.

You may want to delay declaring bankruptcy

Even if bankruptcy is the right decision for you, now may not be the right time to declare. If any of the below scenarios sound familiar, waiting a few months can help you get the most out of your bankruptcy.

You recent income has been unusually high

When the court means tests your eligibility for Chapter 7 and Chapter 13, they do so by averaging your income over the last six months. So, while you may not be eligible for Chapter 7 right now if you recently lost your job, you may be eligible in a few months time.

You can sell assets yourself

If you are filing for Chapter 7 bankruptcy, you will probably be able to get more money for your assets by selling them yourself rather than letting the court do it. You can then use this money to pay more of the debt down or buy exempt assets.

You are expecting a large debt

The list of debts that you submit when filing for bankruptcy is final, and you won’t be able to add any more. If a new is on the horizon, you will be better off waiting until you are charged to declare bankruptcy. Don’t take this as an invitation to lease an expensive new car or incur other frivolous debts, however. If the court considers that you have acted irresponsibly, the debts may be upheld.

What assets can you keep?

The assets that you are legally allowed to keep will depend on the type of bankruptcy that you file.

In Chapter 7, several indispensable assets such as your home and car can be made exempt from the liquidation. Each state has its own laws on what value these exempt assets can hold, so consult a bankruptcy attorney for detailed information.

In Chapter 13, all assets are exempt just as long as you stick to the agreed repayment plan. To be clear, however, you must repay an amount that exceeds or is equal to the value of your assets. Failure to do so will result in asset liquidation.

Declare bankruptcy while you still have cash

Despite popular opinion, waiting until you have nothing left in the bank to file bankruptcy is not a good idea. Although you can do it yourself, many individuals choose to hire a bankruptcy attorney who will charge several thousand dollars. If this article has confirmed your suspicion that bankruptcy is the right solution for you, it may be sensible to stop paying unsecured bills in order to save money for an attorney. After all, if you declare bankruptcy soon, they won’t be able to chase you much longer.

Get a free evaluation before you file

It is important to understand all of your options when filing for bankruptcy. That means your first step should be to speak to a debt advisor to see if any other options, such as refinancing or settling your debts are suitable for you. Even if you have tried both tactics yourselves, these professionals have the tools and experience to settle. What do you have to lose?

Chapter 7 Bankruptcy FAQs: Everything you need to know

Chapter 7 offers something every debtor dreams of: a fresh start with no more debt. But there’s more to bankruptcy than meets the eye. Only certain people qualify for one and it may not cancel out all of your debt. If you’re deciding to move ahead with Chapter 7, here are the answers to all of your questions.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy writes off certain types of outstanding debt while allowing individuals to retain exempt assets like a house or car. It gives debtors a fresh start, free from the burden of debt, but you must pass strict criteria to qualify.

Who is eligible to file for Chapter 7?

Only individuals who pass a means test and receive credit counseling 180 days prior to filing are eligible for Chapter 7 bankruptcy. Businesses and individuals who earn too much cannot use Chapter 7 to discharge debts.

How do you pass the means test?

There are two ways that individuals can pass the Chapter 7 means test. The first is by having a monthly income that is lower than their state’s median monthly income.

If your income is too high, you can also qualify by proving that the amount you owe exceeds your disposable income by a certain amount that varies by state.

In both cases, the average monthly income is calculated using figures from the previous six months. As such, it may be beneficial for some individuals to delay filing for Chapter 7 until their six-month average income is a fair reflection of their financial situation.

What is credit counseling?

Individuals must attend a government-approved credit counseling session within a 180-day period before applying. The counselor will discuss alternatives to bankruptcy and determine if steps such as establishing a budget can help you pay off your debts.

What are asset exemptions?

Chapter 7 provides exemptions for certain assets such as your house and your car, providing that they fall below a certain value determined by your state. Anything that is not exempt can be liquefied by your creditors to pay off your outstanding balance.

What is the process of Chapter 7?

After you have completed the necessary credit counseling session, you’ll need to file a petition at your local federal bankruptcy court. This will include filing several forms detailed below and paying the fee to file the case.

You will experiences the benefits of bankruptcy immediately. An automatic stay will stop debt collection agencies from contacting you and wage garnishment will also cease and possibly even reversed. Once the paperwork has been confirmed by the court, they will appoint a bankruptcy trustee to your case and you will need to meet with them to discuss your financial situation. Based on the evidence that you present, they will decide whether or not your case will be accepted.

If the trustee accepts your case, most of your debts will be discharged immediately. But not all of them. Priority debts, such as alimony and child support, as well as debts for federal or state loans, criminal debts, and tax debts cannot be discharged and will need to be paid in full.

This entire process should happen within the space of six months and is usually concluded much faster.

What paperwork is involved in Chapter 7?

You can file for Chapter 7 on your own, but most applicants seek professional advice from a lawyer. The process is complex, procedures must be followed carefully and you will need to submit the following documents:

  • Schedules of assets and liabilities
  • Your current income and exposure
  • A statement of financial affairs
  • A schedule of executed contracts and current leases
  • A copy of your most recent tax return and any filed during the case

This alone can be difficult for a self-applicant. But you will also be expected to submit the following:

  • Your certificate of credit counseling
  • A copy of your debt repayment plan if applicable
  • Evidence of payment from employers for the previous two months
  • A statement of monthly income and anticipated changes
  • Records of interest in state or tuition accounts

That’s not all, either. To complete the necessary forms, you’re going to need to compile the following:

  • A complete list of creditors and the amounts you owe
  • Detailed information about your income
  • A list of property you own
  • An itemized list of your living expenses

Sound like a lot of work to you? That’s why most people hire a lawyer.

Do I need a lawyer?

You are free to represent yourself but having a lawyer is highly recommended. Not only will they take care of filing all the information listed above, but they will also be liable for mistakes. That means they’ll be on the hook if your case gets tossed due to human error.

Are there any fees involved?

Filing for bankruptcy isn’t free and you’ll have to pay the following fees to file for Chapter 7:

  • A case filing fee of $245
  • An administrative fee of $75
  • A trustee surcharge fee of $15

You will also need to pay your bankruptcy lawyer if you use one. All of these fees can be paid in installments, and court fees can be waived if you live far enough below the poverty line.

Can married couples file jointly?

Yes, married couples can file jointly under Chapter 7, and only one set of forms and one filing fee is required if they do.

Can your Chapter 7 bankruptcy case be dismissed?

Yes, and there are several reasons why your Chapter 7 case may be dismissed. Among the most common are:

  • Failing the means test
  • Making mistakes on files and applications
  • Failing to complete credit counseling
  • Failing to pay associated fees
  • Not attending court
  • Failing to meet your trustee

Your case will either be dismissed with or without prejudice depending on the reason. If it is dismissed without prejudice because of an honest mistake, you can reapply immediately. If it is dismissed with prejudice because you attempted to cheat the system, however, you must wait six months before reapplying, and some debts may be prohibited from getting discharged.

How does Chapter 7 bankruptcy affect my credit history?

Chapter 7 bankruptcy will remain on your credit report for ten years and can cause your credit score to fall by 200 points or more. As a result, you will struggle to get accepted for any form of credit immediately or for several years after. Even when you do get access to credit, your interest rates are likely to be significantly higher than normal, and lines of credit will be smaller.

The good news is that the impact of Chapter 7 bankruptcy on your credit score is diminished with each passing year. And, what’s more, declaring bankruptcy may be much better for your financial future than trying to struggle with the burden of debt.