May 4, 2007
Recently, I read an article published by bankrate.com which included significant misinformation about consumer bankruptcy. The article erroneously reports that a Chapter 13 personal reorganization bankruptcy appears on one’s credit report for a period of 7 years from the date the case is completed. It warns that someone who successfully completes a Chapter 13 bankruptcy will have the “cloud” of bankruptcy for 12 years. This is absolutely false.
According to Maxine Sweet, Experian’s VP of Public Education. a Chapter 13 appears on a debtor’s credit report 7 years from the date of filing. Since a Chapter 13 typically takes 3 to 5 years to complete, it will completely disappear 2 to 4 years thereafter. If a Chapter 13 bankruptcy is dismissed, it will still remain on a credit report for 7 years from the date of fling.
Furthermore, it is common knowledge that, while a bankruptcy stays on one’s credit for a period of 7 years for a Chapter 13 and 10 years for a Chapter 7 liquidation bankruptcy, the “bankruptcy effect” weakens over time. A two year old bankruptcy means more to creditors that a six year old bankruptcy because creditors are primarily interested in present financial circumstances. If one’s debt-to-income ratio is much improved from years earlier, the negative effect of a prior bankruptcy is minimized.
Quite frankly, it is important for consumers to recognize that bankruptcy is not a cure for financial distress. It is but one part of an overall strategy to fiscal stability. So, even though credit card offers will return to a debtor’s mailbox shortly after his or her bankruptcy is finished, it is probably a good idea to just throw them away.