When the lawyers at Kain & Scott meet with potential bankruptcy clients, we always make it a point to ask what questions or concerns the client has during our first appointment. Almost everyone we meet with has worries about filing a bankruptcy case, and many of the questions that spring from that worry are the same from client to client. Let’s look at some of the commonly-asked questions we get from our clients - and get some answers.
How long does my bankruptcy filing remain on my credit report?
This question, or a variation of it, is one of the most common questions I get asked by potential clients. The answer depends on the bankruptcy chapter that the client files. Here’s the rule: a credit report will show a chapter 7 bankruptcy filing for ten years from the date of filing; a credit report will show a chapter 13 bankruptcy filing for seven years from the date of filing. Why the better treatment of the chapter 13 debtor? It’s all about whether any part of a debt was repaid. In typical chapter 7 bankruptcy cases, no unsecured debt will be repaid, while in chapter 13 cases, at least some of the unsecured debt must be repaid - so credit reporting agencies look more kindly at chapter 13 debtors than chapter 7 debtors.
So many of our clients have this question because almost everyone coming in to see one of our attorneys understands that filing a bankruptcy case is detrimental to credit. Clients need to have this question answered, but I also like to tell clients that the presence of a bankruptcy case in the public records section of a credit report is one, but not the only factor that lenders consider in determining whether to extend credit to a loan applicant or a credit card to a credit card applicant. The elimination of debt, which happens at the time a bankruptcy case is discharged, is an important consideration for lenders - and that happens more quickly in chapter 7 cases than chapter 13. It’s an important consideration because of the importance of the debt-to-income ratio in lending decision-making, and a discharge happens much more quickly in a chapter 7 case (three and a half to four months after filing) than a chapter 13 case (three to five years after filing).
How long does it take to file a chapter 13 bankruptcy case?
Chapter 13 cases often have an urgency that chapter 7 cases don’t. There are a couple of reasons for this, and the reasons have to do with the unique features of chapter 13 with respect to secured debt. Chapter 13 allows an individual who has had a car repossessed to get the car back. Chapter 13 also allows homeowners faced with foreclosure to propose a mortgage arrears repayment plan that will, when filed, cancel a foreclosure sale.
But there are “catches” to this: a debtor who has had a vehicle repossessed must file a chapter 13 case prior to the redemption period offered by the lender has expired. In most cases, the redemption period is approximately two weeks after the repossession. If a chapter 13 case is filed after the redemption period has expired, then the bankruptcy filing has no legal requirement for a lender to return a repossessed vehicle. Chapter 13 is only going to work with mortgage arrears if the case is filed before the sheriff’s sale of the real estate.
Human nature being what it is, it’s not uncommon to have a client contact us in the “eleventh hour,” shortly before whatever deadline exists. While this is not ideal, at Kain & Scott, having a bankruptcy case filed quickly, on a short deadline, is something we’re capable of doing. Why? The reason is that bankruptcy work - and specifically debtor representation - is all we practice. So we have the infrastructure needed to meet with a client with pressing time problems and get the bankruptcy case filed in a matter of a day or two, not weeks or even months that other offices that simply do bankruptcy “on the side” take to prepare and file a chapter 13 case.
For those clients who are not looking at impending deadlines in the immediate future, the answer as to how long it takes to file a chapter 13 case is that it is up to the client. Our process is straight-forward: an initial meeting with a client in which the information necessary to prepare a chapter 13 petition, schedules and statements is received, then a follow-up meeting to make sure that all of the factual information required in the bankruptcy petition, schedules and statements is complete and accurate, and to determine the amount of the monthly chapter 13 payment and the length of the chapter 13 plan. After that meeting, the chapter 13 case is typically filed within three business days.
How do I remove discharged debts from my credit report?
Creditors are not required to remove defaulted account information after you receive your bankruptcy discharge. Rather, the creditors assume that the public records component of your credit report will show a bankruptcy discharge. Professionals reading the report will know that you’ve received a discharge and that the listed accounts were, in all likelihood, subject to that discharge.
Most creditors will show a zero balance for the account in question. But the account itself will not be removed from your credit report until seven years have passed from the initial default on the account.
One of the keys to improving your credit score after your bankruptcy discharge is to pay attention and check on the information that is contained in the credit report - we see errors in our clients’ reports on a regular (although not frequent) basis. One of the easiest ways to do this is to go to annualcreditreport.com, which is a website that will generate a free credit report for you. Please note that you can only get one free credit report per year. And it’s also important to know that when you receive a bankruptcy discharge, that information goes to creditors immediately, but creditors are not always quick to notify credit reporting agencies. So activate your patience and take your time if you are looking for your discharge debt information to show up on your credit report.
Next week I’ll try to answer some more frequently asked questions.