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Bankruptcy and Credit Reports

By Ruth Racey
Published: Sunday, September 20th, 2009

With the current economic climate, more Americans are choosing to file bankruptcy and gain protection from their creditors and lenders. A common misconception many cardholders have is that declaring bankruptcy is one way of getting off the hook and getting a new lease on financial life. While declaring bankruptcy can be tempting, its implication on a consumer’s credit score, rating, and history can be irreversible.

There are basically two kinds of bankruptcies. A Chapter 7 bankruptcy, also called a liquidation bankruptcy, allows cardholders to discharge all of their debts. The second type, Chapter 13 bankruptcy, gives consumers a chance to reorganize their finances and pay off debts using a negotiated payment plan.

Most cardholders with large debts often turn to bankruptcy to help stop creditors from collecting debts. Unfortunately, bankruptcy will also mean a tougher road ahead for Americans looking for new credit or loans.

Leaving a bankruptcy as it is means that it will remain in a credit report for a good 10 years. That period is even longer than the seven years allowed for all reports, good or bad to appear in a credit report. Declaring bankruptcy will also result in the credit score suffering a major blow. A cardholder’s score can drop hundreds of points after the declaration of bankruptcy.

Potential creditors and lenders will also look at a bankruptcy entry in a credit report as a sign that a consumer is a financial liability. This would greatly reduce a cardholder’s chance to regain good credit standings and the opportunity to avail loans and finance options.

For debt-ridden Americans, however, there is no need to wait a full decade to start building up a new credit history. Consumers can usually ask financial experts for help regarding their tarnished credit histories and reports. Because credit pays an important role in the lives of most Americans, getting a clean slate is crucial to enjoy the benefits of having a good financial standing.

Legal and financial experts can help make the difference when dealing with bad credit reports. By hiring specialists to assess and determine the best course of actions, consumers can drastically reduce the amount of time that a bankruptcy appears in records. Cardholders can even contest the information in their credit reports and demand that their bankruptcy entries be removed. Most experts would be more than willing to take the legal route to challenging possibly inaccurate records. The Fair Credit Reporting Act can be used by consumers to help repair their credit histories and future credit reports.

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