Your Credit Rights After Bankruptcy: Discharged Debts and Zero Balances

A "Fresh Start" After Bankruptcy

Individuals who file for bankruptcy often look forward to their "clean slate" and their chance at a fresh start; a financial do-over if you will. But dealing with your credit history is one of the toughest aspects of life after bankruptcy. As soon as you file for bankruptcy, you can start rebuilding your credit. In fact, you can actually re-establish a decent credit score only a few years after bankruptcy. Your credit history plays a major role during this transition and you'll find out that creditors can often make mistakes. These mistakes can be costly--affecting your chances at new credit and delaying your recovery.

Credit Reports and Debts Discharged in Bankruptcy

The common advice is to re-establish and rebuild your credit as soon as you can. Initially, the most important thing you can do is to simply make sure your credit is being reported accurately. During a bankruptcy, eligible debts are discharged and should be reported as such. After bankruptcy you are not responsible for discharged debts. However, if creditors do not report these accounts with zero balances, your credit history implies that you are still responsible for them and not making payments. By law, discharged debts can show delinquencies but they must be reported with zero balances.

Consequences of Remaining Balances Post-bankruptcy

If discharged debts show up after your bankruptcy, this hurts two aspects of your ability to get new credit. First, the remaining debt increases your debt-to-income ratio because it shows up as a payment and balance owed. Second, a percentage of your credit score is determined by the amount of utilized debt when compared to available credit. Overstating this amount hurts your score, and it's your right to have the reported information corrected.

Your Fair Credit Reporting Act Rights

Statistics have shown that up to 70%of consumer credit reports contain errors ranging from misspelled names to severely derogatory trade lines or public records. As troubling as these statistics may be, bankruptcy filings can be even more susceptible to error. Fortunately, the Fair Credit Reporting Act protects consumers from such errors in their credit reports. The steps to dispute an error vary slightly, but the common method is to contact the creditor to correct the error and notify the appropriate reporting agencies.

Living with bankruptcy is tough, so make sure your creditors aren't making it harder than necessary. Credit reporting mistakes are quite common, but the ultimate responsibility falls on you. Review your credit report for free at www.annualcreditreport.com and make sure you are not a victim of these common credit reporting errors.

Sources:

• FTC - Dispute Credit Report Errors
• CreditReport.com - 70 Percent errors

About the Author:
Heindrick So works for a Bay Area Real Estate company that specializes in residential wholesale lending. His work experience is comprised mostly of sales and marketing background which included a high end media sales position at Magnolia Hi-fi. Heindrick is also in his final year of pursuing his Bachelor's Degree in Electrical Engineering at San Jose State University.