What should my credit report look like after bankruptcy?

So you’ve filed for bankruptcy, gotten a discharge, and pulled your credit report.  What should it look like?  Should it be blank?  Should all of your creditors be on there with a special notation?  What exactly should you expect to see?
First of all, make sure that your case is completed and you’ve actually received your discharge.  Many people unfamiliar with the bankruptcy process and procedures aren’t clear on when the discharge actually occurs.  You will receive an official notice from a U.S. Bankruptcy Court, and the caption on the document will read “Order of Discharge” or something substantially similar.  Your attorney has also probably sent you a letter around the same time confirming in clear language that you’ve received your discharge and that he will be closing out your file and concluding representation.  If you’re not sure, you can always call your attorney to confirm whether you’ve received your discharge or not.  If you filed a Chapter 7 Bankruptcy case, the discharge is issued about 2 months after your hearing with the Trustee.
Second, after you’ve received your discharge, I would wait a few months before pulling your credit report.  Some creditors will notate your account as being discharged right away after your case is filed.  That’s an internal procedural practice some creditors have.  Most wait until you actually receive your discharge (just in case you don’t get it), because legally, that’s when certain debts are – permanently – no longer collectible.
All right, so let’s take a simple and common example.  You’ve filed a Chapter 7 Bankruptcy, you’ve gotten your discharge, and you’ve waited a few months to pull your credit report.  In the bankruptcy, you reaffirmed on your mortgage and car loan, and you had a single student loan that you knew wouldn’t be discharged in the bankruptcy case.  Everything else you had – credit cards, medical bills, payday loans, etc. – should have been discharged.
First, pull the credit reports.  You are entitled to a free report from all three major credit bureaus (TransUnion, Experian, and Equifax) once every 12 months under the FACT Act.  To access those free reports, go to http://www.annualcreditreport.com/.
What is described below is based on the formats used in July 2016 – these may change over time.
The Bankruptcy Itself
All three reports have a section on Public Records, and this is where a notation about your bankruptcy case will reside for up to 10 years after your case is filed.  On the Experian report, it won’t be labeled as Public Records, but it will show up near the top of the report.
Reaffirmed / Non-Dischargeable Debts
These should appear exactly as they had before you filed for bankruptcy, plus whatever payments have been made since the last time you pulled your report.  So any reaffirmed mortgages or car loans that you’ve continued to make payments on, any student loans or other non-dischargeable debts that were not affected by your bankruptcy case – these will all continue to show up as they had in the past.
Old Accounts Settled / Closed Prior to Bankruptcy
In the reports we examined, accounts that had been satisfied, paid in full, transferred to another creditor, or closed – all continued to appear on the credit report.
Debts Discharged in Bankruptcy
In none of the credit reports did any of the debts discharged in bankruptcy show up in any way, shape, or form on the credit reports – save for one, which was never the debtor’s account in the first place and erroneously reported; although that creditor was listed on the debtor’s bankruptcy schedules for good measure.

7 Year Myth

Quite often, clients believe that a bankruptcy case will only remain on their credit report for 7 years and/or that 7 years is the period of time someone must wait before filing another bankruptcy case.
  • A bankruptcy remains on your credit report for up to 10 years.
  • Someone who files for Chapter 7 bankruptcy and receives a discharge must wait 8 years before filing for another Chapter 7 bankruptcy.

The source of confusion for the first one appears to be linked to a general 7 year rule about how long old debt can be reported on your credit report.  Generally speaking, if you file for bankruptcy, most if not all of the debts that were discharged in your bankruptcy should no longer show up on your credit report at all after 7 years, even though the bankruptcy case itself will linger and continue to be reported for another 3 years.
Your credit score, however, may rehabilitate much faster.  Depending on your financial circumstances, what – if any – debts survive your bankruptcy (either because you reaffirmed on them, or because they couldn’t be discharged), and how well you manage your credit after bankruptcy – many people find that their credit score has rebounded somewhat within about 12 months.
As for the 8 year refiling prohibition, please remember that 8 years assumes that both the first and second cases were Chapter 7 cases, and that the debtor received a discharge in the first bankruptcy case.  If there was no discharge in the first case (it was only filed, but dismissed without a discharge), then these time limits do not apply.  Other limits may apply, depending on how soon after the first case is dismissed you attempt to file the second case.
If either the first, second, or both cases are a Chapter 13, then that time period can be shortened from 8 years to 6, 4, or 2 years.  Also, you can be eligible to file a Chapter 13 case even if you’re not eligible to receive discharge.  And these questions get a lot more complicated if either the first case is converted from one chapter to another (which I cover extensively here).

Unfiled Claims in Chapter 13

No creditor who doesn’t file a proof of claim will be paid by a Chapter 13 Trustee.

Let me repeat that…

No creditor who doesn’t file a proof of claim will be paid by a Chapter 13 Trustee.

What does that mean?

Let’s say John Doe has 4 credit cards, one with Wells Fargo, one with Chase, one with Bank of America, and one with HSBC.  Let’s also say that each one has a balance owed of $5,000 – or a grand total of $20,000.

Let’s further pretend that John files a Chapter 13 Bankruptcy which proposes to pay 10% to each of his unsecured creditors.  If Wells Fargo, Chase, BoA, and HSBC all file claims, then each will get 10% of their claims, or about $500 each and a total of $2,000.

But what happens if BoA doesn’t file a claim?  Then there are only $15,000 in claims.  John still pays the $2,000 that his disposable income was calculated out to.  But now the 3 creditors who did file claims (Wells Fargo, Chase, and HSBC) all share that $2,000 – $667 each.  That means that each creditor gets paid 13% of their claims – except BoA who gets paid $0 because they didn’t file a claim.

What if BoA is the only creditor who files a claim?  Well, then John is still paying the $2,000 of disposable income, but now BoA is getting paid 40% of their $5,000 claim, while each of the other 3 creditors gets paid $0.

In short – John Doe pays the exact same amount – $2,000 – no matter which creditors file claims or how many creditors file claims.  But if certain creditors don’t bother to file claims – they don’t get paid, and the creditors that did file claims get paid a bigger share.

What if we keep the facts exactly the same, but instead of $2,000, John’s disposable income shakes out to $7,000 over the life of his Chapter 13 case?  $7,000 is 35% of $20,000, so if all creditors file claims, they’ll get 35%, or $1,750 each.

But now let’s say again that only BoA files a claim.  Their total claim is $5,000, which is less than the $7,000 in disposable income that John has to pay his unsecured creditors.  BoA gets paid their claim in full – at 100%.  Since there are no other claims to pay, his Chapter 13 Plan ends early, and he gets to keep the extra $2,000.  The other 3 creditors are shit out of luck.

Now, all of this is overly simplistic because we’re assuming nothing but unsecured and dischargeable creditors.  Let’s stop talking about hypothetical numbers and start discussing the issues that affect the analysis.

  1. In the above examples, we’re assuming that John Doe is eligible for a discharge.  If he is, then whatever is not paid to these 4 creditors (whether they files a claim or not) is wiped out upon receipt of the discharge.  These 4 creditors cannot pursue John for the unpaid balances after his bankruptcy is over.
  2. What if John isn’t eligible for a discharge?  Maybe he filed a prior bankruptcy case too recently.  Maybe he failed to complete his financial management course.  Maybe he fell behind on child support after his bankruptcy case was filed.  Or maybe he failed to make his plan payments and his case got dismissed.  Without a discharge, creditors can then pursue John for any unpaid balances owed after his bankruptcy is over – whether they filed a claim or not.
  3. If a debt is non-dischargeable (like a student loan) and they don’t file a claim, the debt is still non-dischargeable, which means the full balance and interest will be due when John exits bankruptcy.  Since student loans share the same dividend of funds as other unsecured creditors, it is in John’s interest to make sure his student loan creditors file claims so that they can at least get paid down a bit – and to reduce the amount of money his other dischargeable creditors can get their hands on.
  4. Remember the example where BoA got paid in full, John still had $2k in disposable income, but since the other 3 creditors didn’t file claims, they got paid $0?  Why don’t those creditors file claims then?  Because all creditors are under a deadline to file their claims.  Once that deadline has passed, they can’t file a claim – no matter what else may have changed about the debtor’s bankruptcy case.  If the creditor was not duly notified of the bankruptcy in time to file a claim, then their claim is likely going to be non-dischargeable.  But if they were duly notified and chose not to file claims on-time, it’s their loss.