November 27, 2023   |   Read Online
Today’s Topic Credit Reports and Bankruptcy
Once you file bankruptcy, the open accounts on your credit report should reflect a zero balance with a notation that you have filed bankruptcy. That does not mean, however, that all negative remarks that are already in your report will be erased.

There’s been a debate lately on bankruptcy forums on Facebook regarding the fact that your late payment history remains on your credit report, even though the amount owed goes to zero when you file. Some attorneys have argued that retaining a negative credit history is a violation of the automatic stay. (The automatic stay is something that goes into effect when you file bankruptcy; it prohibits creditors from taking any action to collect the amount that you owe.)

Because even the attorneys seem confused, I did a little research. Here’s what I found:
· If your report shows a history of late payments on the day you file bankruptcy, that history can stay on your report for up to ten years;[1]
· If there is no late payment history in your report on the day you file bankruptcy, a creditor may or may not be able to add one after you file bankruptcy (depending on where you live); and
· Retaining an existing late payment history on your report after you file bankruptcy is not prohibited by the Bankruptcy Code.

Lots of people considering bankruptcy ask if they can (or should) stop making payments on their credit cards for a few months before they file. I’ve always advised them to do so on the theory that (a) their credit is already in the toilet, and/or (b) they have better uses for the money if they are going to file bankruptcy anyway.

I stand corrected. If you quit making payments several months before filing bankruptcy, any history of late payments will survive the bankruptcy and make it even more difficult to get new credit or rebuild your credit score after you file. If, on the other hand, you already have a history of late payments, you might as well quit making payments and use the money for something else, including hiring a bankruptcy attorney.

If you can keep making payments, reduce the amount you pay to the minimum payment required to maintain the account in “current” condition (without any negative payment reports).

Tip for the Week: Here are some resources for people who cannot afford a bankruptcy attorney and want to prepare a bankruptcy petition themselves:
· The Bankruptcy Court’s website (see Petition Package and instructions)
· Upsolve
You can also look for help on your local Bankruptcy Court’s website. Many Courts offer a free bankruptcy clinic and many have referral links.

Next week’s topic: Should you reaffirm your car loan?