Bankruptcy And Your Credit Score
How long will a bankruptcy stay on my credit report?
Individual delinquent accounts may disappear from your credit report sooner than your bankruptcy does. This is because each delinquent account will remain on your report for a total of seven years from the date that it first became delinquent. So if you have accounts that are delinquent before the bankruptcy, they could fall off of your report before the record of the bankruptcy is removed.
How long does a Chapter 7 case take to complete?
Chapter 7 tends to stay on your credit report for ten years. That time is measured from the date of filing. It generally takes 4-6 months to get a discharge in a Chapter 7 case. So, if you file a Chapter 7, you can expect the bankruptcy to appear on your credit report for around 9.5 years after your discharge.
How long does a Chapter 13 case take to complete?
Generally, a Chapter 13 bankruptcy will stay on your credit report for seven years. A Chapter 13 case takes anywhere from three to five years to complete, depending on your income level. So a Chapter 13 bankruptcy will appear on your credit report for two to four years after you receive a discharge.
How does bankruptcy affect my credit score?
Any bankruptcy will harm your score. However, the extent of that harm will depend on your score before bankruptcy. If you have a high score going into bankruptcy, it will have a much more significant effect on the score. Conversely, if you have a lower score going into bankruptcy, then filing is not likely to have a drastic impact on your score.
Can I rebuild my credit after a bankruptcy?
It is possible to rebuild your credit after a bankruptcy, and some companies will work with you to re-establish your credit after you file. However, how fast you rebuild your credit generally depends on how quickly you can establish a positive payment history for accounts that appear on your credit report.
Can I rebuild my credit during a bankruptcy?
Generally, rebuilding your credit can be more difficult during a Chapter 7 bankruptcy. While there are companies that will work with you, it may be difficult to get multiple accounts opened after a Chapter 7 bankruptcy. However, with our zero-down, zero-interest program, you have the opportunity to begin rebuilding your credit score right away by spreading the fees associated with filing your case over 12 months of interest-free payments. Those payments are reported to the credit reporting agencies and will help to kickstart the process of rebuilding your credit score.
Rebuilding credit is also possible in a Chapter 13 bankruptcy because Chapter 13 involves a payment plan in which your existing creditors continue to get at least partial recurring payments. This can help to re-establish a positive payment history on more accounts that appear on your credit report, thereby improving your score.
How Bankruptcy Affects Your Child Tax Credit
Will the bankruptcy trustee take my tax refund?
The best answer to this question is: It depends.
Certain tax credits are protected by exemptions in bankruptcy. For example, if your refund is based on the Earned Income Credit or the Additional Child Tax Credit, the amount associated with those credits cannot be taken by the trustee. Similarly, the trustee cannot reach refunds based on Recovery Rebate Credits (associated with Covid relief).
How the additional child tax credit works:
Ohio law provides an exemption to protect payments you are owed in association with the IRS Child Tax Credit.
The IRS Child Tax Credit is used to offset your tax liability. If you qualify, the credit is applied to reduce what you owe to $0 (or as close to $0 as you can get using the allowed credit). Any amount of the credit that is applied to reduce your liability to $0 is not considered a payment owed to you; it is merely a credit. However, any amount of the credit remaining after your liability is reduced to $0 is treated as an overpayment of your tax liability. It is therefore considered a payment that is owed to you, and that amount is protected by the exemption.
Refunds not based on exempt credits:
If your refund is based simply on overpayments to the IRS or State tax authorities, the refund is not protected by an exemption, and the trustee can reach those funds. If you are in a Chapter 7 case, the trustee will take those funds to distribute among your creditors. If you are in a Chapter 13 case, the trustee may (or may not) have a policy by which you agree to turn over a portion of the non-exempt refund and keep the rest. Your attorney will be able to tell you if your particular trustee has such a policy.
Child Tax Credit / Additional Child Tax Credit
If my child tax credit exempt?
ORC 2329.66(A)(9)(f) exempts a person’s interest in payments under IRS code section 24 (child tax credit) and section 32 (earned income credit).
1) Provides a credit ($1,000) for every qualifying child. The credit is used to offset the tax liability.
a. The amount of the credit used to reduce the tax liability down to zero is non-refundable. It does not count as a payment due to the taxpayer under section 2329.66(A)(9)(f).
i. i.e., it is not paid to the taxpayer.
2) If the allowed child tax credit exceeds the taxpayer’s tax liability, the excess portion may be refundable as an additional child tax credit.
a. Any excess (after reducing the tax liability to 0) is deemed an overpayment on the taxpayer’s liability. The overpayment amount is refundable and counts as a payment under section 2329.66(A)(9)(f).
i. i.e., the amount is added to the refund.