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Bankruptcy dismissal

Dr. Don TaylorDear Dr. Don,
I have a dismissed Chapter 13 from 1998 and I've been unable to obtain a car loan. I get the same answer for denial from dealers: Because it was dismissed, creditors can still come after me. I contacted the credit bureaus; they said that's not true. So, whom do I believe? Explain dismissed vs. discharged bankruptcy? Will this come off of my credit in June 2005, seven years later? -- Robyn Redress

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Dear Robyn,
In a Chapter 13 bankruptcy filing, the court discharge of any remaining eligible debts takes place after completion of the three- to five-year court-approved repayment plan. The discharge removes the debtor's obligation to repay the discharged debt.

The court can dismiss a bankruptcy case with prejudice, a trustee can request dismissal or you can request a dismissal. Regardless of how you got there, a bankruptcy dismissal derails the bankruptcy petition and takes away the automatic stay provision of bankruptcy where creditors are forced to the sideline while the bankruptcy court sorts things out. Without the protection of the bankruptcy court, creditors are able to once again resume collection procedures against you.

Bankruptcy dismissals can stay on your credit report for seven to 10 years. As you'll see below, the credit bureaus aren't consistent in how they treat bankruptcy dismissals. That said, most other negative information on your credit report does drop off after seven years from when it was placed on the report.

TransUnion states on its Web site that, "Chapter 13 bankruptcies that have been dismissed or discharged remain on file for seven years." Equifax says, " ... chapters 7, 11 and non-discharged or dismissed chapters 12 and 13 remain on file for 10 years from the date filed; discharged chapters 12 and 13 remain on file for seven years from the date filed."

Experian doesn't discuss dismissals as a separate reporting item on its FAQ page stating, "Missed payments and most public record items remain on the credit report for seven years, with the exception of Chapter 7, 11 and 12 bankruptcies, which remain for 10 years, and unpaid tax liens, which remain for 15 years."

Looking beyond the credit report to whether your creditors can still look to you for payment, it depends. A creditor's ability to collect on a credit agreement will depend on the statute of limitations applicable to that agreement. The laws vary by state, but in most states creditors would not be able to continue to pursue payment after three to six years.

It sounds like your best bet is to have a friend or family member co-sign the loan with you. That would allow you to get the car while your credit history is on the mend.

-- Posted: Jan 20, 2005




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