When you declare bankruptcy, some or all of your current debts may be “discharged” as part of the bankruptcy action. Those discharged debts have special statuses that appear as unique line items on your credit report.
However, many consumers are confused when they still see discharged debts showing up on their credit reports even after filing for bankruptcy. Let's take a closer look at this topic and break down whether discharged debt should show up on your credit report after bankruptcy.
A discharged debt is any debt account that is closed or canceled from bankruptcy.
For example, imagine that you file for bankruptcy and you have three open debt accounts: a car loan, a personal loan, and a credit card. When you file for bankruptcy, these accounts are closed because you have legally declared that you do not have the means to pay them back.
When a debt is discharged, the debtor or borrower is no longer legally liable for the remaining debt amount. More importantly, the lender is no longer legally allowed to try to collect the debt under any circumstances.
Following the above example, if you discharge each of the three debts, creditors can't come after you for them at any point. Debt discharge is intended to help individuals in financial stress stabilize their income and get back to a point of financial health.
Yes. Even though some debt is discharged in bankruptcy, that doesn’t mean that affected debt accounts vanish from your credit report completely. In fact, any discharged debt accounts should remain on your credit report for between 7 and 10 years.
However, each discharged debt account should look different. They'll be clearly marked as discharged, so loan underwriters, businesses, and any other organization that checks your credit reports see that those debts are not open (and that you don't owe money to the original lenders/creditors).
Properly discharged debt should have a balance of $0. In this way, the debt is still on your record, but any future financial officers or organizations know that you aren’t under any obligation to pay back the debt. They also don’t know how much money was left in the debt when it was discharged.
Furthermore, some discharged debt accounts may be marked with special flags or labels, like "discharged," "included in bankruptcy," and so on. These labels provide additional context and information for financial institutions that may take a look at your credit report in the future.
Just as there are signs of properly discharged debt, there are also signs that your discharged debts are showing up inaccurately on your credit report.
For example, if any of your discharged debts are incorrectly labeled as active, they may include labels like:
In addition, if any discharged debt still has a balance due next to the line item, it is labeled inaccurately. It could be difficult to tell whether a debt was discharged in your bankruptcy if you had many debt accounts open at the time of your filing. You may need to contact your bank or credit repair experts to correctly identify which debts were discharged.
Any discharged debt will stay on your credit report for between 7 and 10 years after the debt is waived. The exact timeframe depends on the type of bankruptcy you file.
A standard Chapter 13 bankruptcy remains on your credit report for 7 years, as do any debts that were discharged alongside it. You file a Chapter 7 bankruptcy, on the other hand, both the bankruptcy and any associated debts will stay on your credit report for 10 years.
If you notice a discharged debt has remained on your credit report past the expiration date, it could be due to an error with one or more of the credit bureaus. You should file a dispute letter with the affected credit bureaus to fix the issue quickly.
If you have an inaccurate discharged debt on your credit report, it could have negative repercussions for your financial health.
For instance, say that you file for bankruptcy in pursuit of a fresh start and a clean slate. Ideally, you would be able to apply for new loans after a few months or years of healthy financial activity. However, one of your biggest debt accounts still has a balance next to it. Therefore, loan underwriters believe that you still owe money to your original creditor, compromising your ability to get new funds in the future.
If you have one or more inaccurate discharged debts, you should file a dispute letter with each of the credit bureaus. You can do this by phone, by physical mail, or online.
In any case, the credit bureaus have to investigate any disputed information you bring to their attention. They must do so within 30 days, then get back to you within five business days, according to the Fair Credit Reporting Act. Once the information is fixed, you should be free to continue to financial activities without the burden of bad discharged debt.
If the credit bureaus refuse to look into the issue, or if they don’t correct any erroneous information, you may have grounds for legal action, up to and including a lawsuit. You should contact credit repair legal experts right away for more information on this topic.
Discharged debt should show up on your credit report after bankruptcy for 7 to 10 years depending on the type of bankruptcy you file. However, make sure that each discharged debt is displayed properly, with a zero balance and/or a note that it has been discharged next to the account. If your discharged debts are displayed improperly, you should file a dispute letter and consider legal action.