What Does a Bankruptcy Petition Mean on a Credit Report?

A credit report serves as a detailed record of an individual’s financial behavior, encompassing borrowing, payment history, and certain public records. A bankruptcy petition, representing a formal request for debt relief, is a significant financial event that will be noted on this report.

What a Bankruptcy Petition Entry Signifies

A “bankruptcy petition” refers to the initial document filed with a federal bankruptcy court, formally commencing a bankruptcy case. This filing initiates the legal process for individuals seeking protection from creditors due to overwhelming debt. It is the formal request for bankruptcy, not necessarily the successful completion or discharge of the bankruptcy. Two common types of personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7 typically involves the liquidation of non-exempt assets to pay creditors, while Chapter 13 establishes a repayment plan over several years.

Details on Your Credit Report

A bankruptcy petition entry primarily appears in the “public records” section of your credit report. This section is distinct from your accounts like credit cards or loans. Credit bureaus obtain this information from public court records, as bankruptcy courts do not directly report to them. The entry typically includes specific details about the filing. These details usually encompass the bankruptcy chapter filed, such as Chapter 7 or Chapter 13, and the official filing date. The case number and the court where the petition was filed are also commonly noted.

Consequences for Your Credit Score

A bankruptcy petition entry has a substantial negative impact on an individual’s credit score. It is considered a severe derogatory mark by credit scoring models like FICO and VantageScore. The extent of the score drop can vary significantly based on an individual’s credit standing prior to the bankruptcy filing. This impact stems from how bankruptcy affects key components of credit scoring, including payment history and amounts owed. A bankruptcy signals a failure to meet financial obligations, making it more challenging to obtain new credit, loans, or even housing.

Duration of the Entry

The length of time a bankruptcy petition entry remains on a credit report depends on the type of bankruptcy filed. A Chapter 7 bankruptcy, which often involves liquidation, stays on a credit report for up to 10 years from the original filing date. This duration applies even if the bankruptcy process concludes more quickly. For a Chapter 13 bankruptcy, which involves a repayment plan, the entry is typically removed from a credit report after seven years from the filing date. Even after the official reporting period, the indirect effects of the bankruptcy may persist as positive credit history needs to be re-established.

Correcting Errors on Your Credit Report

Identifying and disputing inaccuracies related to a bankruptcy entry on your credit report is an important step. An error could include an incorrect filing date, the wrong bankruptcy chapter, or a bankruptcy reported that was never filed. It is important to note that this process is for correcting errors, not for removing a valid bankruptcy record.

Obtain a free copy of your credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion. You can access these reports annually through AnnualCreditReport.com. If you find an error, gather supporting documentation, such as court records or official dismissal notices, to substantiate your claim. You can dispute errors with each credit bureau online, by mail, or over the phone. The credit bureau is generally required to investigate the dispute and provide a response within 30 days.