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Clearing Bankruptcy off One’s Credit Report

By Faye Mergel
Published: Thursday, October 29th, 2009

When the recession reached its height last year, many consumers did their best to manage debts on their own and avoid getting into financial troubles. Unfortunately, many of them were not only able to keep their finances from falling apart, they also found themselves unable to rebuild it—at least most of them think that they cannot get out of their debts for the next few years.

Clearing Bankruptcy off One’s Credit ReportWith the economy getting but not well enough to help people feel secured financially, more and more consumers are looking for an option to overcome debt. More than one million Americans found that option in bankruptcy last year, according to American Bankruptcy Institute. That was a 30 percent increase from the number of filings in 2007.

The bad news for consumers is that there are some of them who declared bankruptcy several years ago but are still unable to get their creditworthiness back. When getting turned down for a loan, they only find out that bankruptcy has not yet removed from their credit report.

Oct. 17, 2009 marked the fourth year since the Bankruptcy Abuse Prevention and Consumer Protection Act was signed. The Act required individuals to undergo counseling before filing for bankruptcy to understand how greatly bankruptcy can affect their financial lives. Experts say it will discharge a person from debts, but it will keep him from getting new deals from most creditors. That is because bankruptcy appears on a credit report for seven to ten years, depending on the chapter filed.

When a bankruptcy discharge is granted, the discharged creditors as well as the pre-bankruptcy payment history of a person will not be erased. They will remain on a credit report but the amount outstanding for each discharged account will be shown as zero. This is because a bankrupt consumer no longer has any debt obligation to his creditors because of his inability to pay them back, which is determined by a federal court.

Bankruptcy is a red flag for potential creditors since it tells them that a person was once unable to meet his obligations to his lender. Because of this, consumers must erase negative items off his credit report to regain his creditworthiness. Many companies offer to clear negative items off a credit report but specialists advise consumers to do it on their own. Experts warn consumers that many credit repair companies are merely scammers.

Fair Credit Reporting Act guarantees that a consumer can challenge negative items and update his credit report for accuracy. Experts say there are instances when credit bureaus do not update consumer information unless prompted to do so.

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