How to Handle Bankruptcies and Charge-Offs on Your Credit Report
If you’ve experienced a bankruptcy or a charge-off, you’re not alone — and you’re not stuck. These negative marks can feel devastating, but with the right approach, you can recover and rebuild your credit over time. This guide walks you through understanding, responding to, and ultimately overcoming these setbacks.
1. Understand the Difference
Bankruptcy: A court-supervised process where individuals or businesses eliminate or repay debts.
Chapter 7: Wipes out most debts but stays on your report for 10 years.
Chapter 13: Involves a repayment plan and stays on your report for 7 years.
Charge-Off: When a creditor declares an unpaid debt as unlikely to be collected (usually after 180 days of nonpayment).
The account may be sent to collections or sold to a debt buyer.
Charge-offs stay on your credit report for 7 years from the original delinquency date.
2. Review for Accuracy
Errors can make a bad situation worse. Pull your credit reports from all three bureaus at AnnualCreditReport.com and review them line by line.
Are the dates accurate? (Filing, discharge, first delinquency)
Do accounts included in bankruptcy show $0 balance and “included in bankruptcy”?
Is any charged-off account being reported multiple times (by original and collection agency)?
If you spot any errors, file disputes with the credit bureaus. Provide documentation and request corrections. Errors must be resolved within 30–45 days under the Fair Credit Reporting Act (FCRA).
3. Rebuild Credit After Bankruptcy or Charge-Offs
Once the damage is done, it’s time to focus on recovery. You can rebuild — even within the first year.
Secured Credit Cards: Require a refundable deposit, report to all 3 bureaus, and help build a fresh payment history.
Credit Builder Loans: Small installment loans where payments are held in savings until the term ends. Great for re-establishing installment credit.
Authorized User Status: Ask a trusted family member with good credit to add you to their card. Their payment history can help lift your score.
Timely Payments: Every on-time payment is a step toward recovery. Set reminders or automate bills to avoid mistakes.
Low Credit Utilization: Keep balances under 30% of your limit — ideally under 10%.
4. Settle or Negotiate Charged-Off Accounts
Even though charge-offs remain on your report, paying them can improve your creditworthiness with future lenders.
Contact the creditor or collector and ask for a pay-for-delete agreement. Get it in writing.
If pay-for-delete isn’t possible, request the account be marked as “paid in full” or “settled in full.”
Never send payment without a written agreement outlining the terms.
Pro Tip: If the debt is older, check your state’s statute of limitations. Making a payment on old debt could restart the clock.
5. Don’t Ignore Legal Notices
Some charged-off debts may result in lawsuits. If you’re served legal papers or contacted about court action:
Don’t ignore it — respond within the deadline.
Seek free legal help via LawHelp.org or your local legal aid society.
If you believe the debt is beyond the statute of limitations, raise that as a defense.
6. Let Time Work for You
Bankruptcy: Falls off automatically after 7–10 years.
Charge-Offs: Disappear 7 years after the original missed payment (not the date it was charged off).
As negative items age, their impact on your score lessens — especially if you’re adding new, positive credit behavior.
7. Monitor Your Progress
Use free tools from Credit Karma, Credit Sesame, or your credit card provider to track scores and alerts.
Look for steady progress, not overnight change. Focus on consistency and habits.
Need Help Navigating It All?
At My Credit Ally, we offer personalized credit report reviews and one-on-one guidance to help you recover from bankruptcy or charge-offs.