Some debts stain credit report for years

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Dear Bankruptcy Adviser,
We went through bankruptcy, and we were told that items that were co-signed by my mom would no longer be in my name, just hers. However, when I checked my credit record, I discovered the debt was still under my name. When I asked my attorney about it,I was told it’s supposed to be like that. Is that right?
— Dolores

Dear Dolores,
Congratulations on your successful bankruptcy. You will be able to start rebuilding your credit and finding that life after bankruptcy is not as horrible as many people think. However, regarding your credit history, it will still be with you for some time.

While the bankruptcy eliminated your liability for the debts on your credit report, it did not eliminate the creditors’ rights to continue reporting your past account activity on your credit report.

Most negative credit marks will remain on your credit report for seven years from the date that the first negative report was filed. Below are some negative financial events, and how long they remain on your credit report:

  • Late payments, collection accounts and charged-off accounts can remain on your report for seven years from the initial missed payment.
  • Judgments remain for seven years from the date the judgment is filed.
  • City, county, state and federal tax liens remain for seven years from the paid date of the lien. Unpaid liens remain for 15 years from the date the lien is filed.
  • Bankruptcy will remain on your credit report for 10 years from the date of filing.

The creditor has no legal obligation to remove a credit line from your credit report simply because you filed for bankruptcy. Otherwise, most everyone would have a blank credit report after filing. Having “ghost credit,” meaning you show no credit history, is likely to be as detrimental to your credit as having negative credit marks. Future lenders would be just as suspicious of people having no credit history as they would be reluctant to lend to people if they had a negative credit history.

The best you can do is to make sure that each credit line on your report properly reflects that the account was included in the bankruptcy. You should make sure that each credit line states “discharged (or included) in bankruptcy” and that no balance remains. This is the only way to stop the negative reporting of future credit line activity.

Finally, it is important to have the credit line properly reflected as discharged in bankruptcy because you don’t want the lender to sell the credit line to a collection agency. That agency will add another negative notation on your credit report, and that line could be very difficult to remove. The new collection agency cannot collect on the debt that was eliminated in your bankruptcy, but it might be very difficult or impossible to get that line removed.

Even though you can proactively make sure all credit lines are reporting accurate information, you cannot remove those liens just by filing for bankruptcy.

Stay positive, because you can have perfect credit again.

Read more Bankruptcy Adviser columns and more stories about debt management.