Is Chapter 7 The End of the World?

We just had a Chapter 7 approved. Is there ANY way to get this off our credit report sooner than 10 years?

Cathy

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Hello Cathy,

The Chapter 7 bankruptcy notation will remain for ten years.  The individual accounts that were included in your bankruptcy must be purged after seven.  Having written that, now I must insist that you take courage, you are actually fortunate for a number of reasons. 

First, the credit card company lobbyists were successful in their efforts to prevent many debtors from filing Chapter 7 Bankruptcy and alternatively forcing them into a Chapter 13 repayment plan.  A “means test” was established and – if your current monthly income exceeds the census bureau’s median income – then you must pass the “means test” to file for Chapter 7 Bankruptcy.  If you don’t pass the “means test” then you must file a Chapter 13.  The following are some excerpts from the U.S. Trustee Program regarding “means testing”. 

“Most individual debtors filing for Chapter 7 bankruptcy relief are required to complete either Official Bankruptcy Form B22A or B22C (Statement of Current Monthly Income and calculations). Bankruptcy Form B22A is the form most chapter 7 debtors will complete for “means testing” purposes..”

“A debtor must enter income and expense information onto the appropriate form (i.e., Form B22A or Form B22C) and then make calculations using the information entered. Some of the information needed to complete these forms, such as a debtor’s current monthly income, comes from the debtor’s own personal records. However, other information needed to complete the forms comes from the Census Bureau and the Internal Revenue Service (IRS)”. (emphasis added)

Many of the bankruptcy attorneys that I know (and even judges) don’t refer to this as the “means test”.  They call it the “mean test” (singular) because it is mean.

For the record, thefreedictionary.com defines ‘mean’ (in part) as:

mean (adj. mean·er, mean·est)

1.a. Selfish in a petty way; unkind.
1.b. Cruel, spiteful, or malicious.

The data from the Census Bureau and the IRS that is required to be plugged into the “means test” formula to calculate a persons expenses does not entirely consider a persons true expenses and so the test in not friendly.  As a result, many people are precluded from filing a Chapter 7 Bankruptcy and in that regard you have been blessed.

Secondly, a Chapter 7 Bankruptcy is not the end of your credit life.  As soon as the bankruptcy is discharged, you should obtain a copy of your credit report from each of the three CRA’s and complete bankruptcy credit repair.  You should establish three active and open tradelines and believe it or not, there are plenty of mortgage programs that exist that will allow you to obtain a mortgage loan one day after discharge.

One final note about bankruptcy is that you have now been placed on a separate scorecard for credit reporting.  This is not a bad thing.  Essentially what it means is that FICO will now compare you to other consumers that have a bankruptcy notation on their credit report.  In sum, all you have to do is have your credit report look prettier than the others that have filed bankruptcy and, if you do this, a credit score in the mid to high 600’s is possible in the first year and shortly therafter a 700+ score awaits you with open arms.  The suggestions in the previous paragraph will get you there. 

The problem is that most people file for bankruptcy and then give up.  Obviously, such an attitude would be reflected in that persons credit score.  The fact that you have visited the Broken Credit Blog tells me that you are not one of those people.

Thanks for the questions and your future looks bright!

Paul

This author is not an attorney and this information is not considered legal advice.  Please consult and attorney for legal advice.

(source=usdoj.gov/ust/eo/bapcpa/meanstesting.htm)