Ask Stacy: Do I Have to Admit to a Bankruptcy?

What's Hot

2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Do you still have to admit to a bankruptcy after it no longer appears on your credit report?

This week’s question comes from someone who is ready to move on after completing a Chapter 13 bankruptcy, and wonders when his slate will be clean. Considering the number of people who were forced into bankruptcy during the 2007 credit crisis, he’s probably not alone.

I filed chapter 13 and was released in 2006, do I still have to admit I filed bankruptcy after it no longer shows on my credit report?
— James

How long the pain lasts

Most dings to your credit history remain visible for seven years, although their effect diminishes as they age.

Many people believe that all bankruptcies stay on your credit report for 10 years. Not true: For Chapter 7 bankruptcies, the 10-year number is correct, but a Chapter 13 only remains on your report for seven.

James is right to be concerned about getting this negative off his credit history. As you might expect, a bankruptcy is one of the worst things that can happen to a credit score.

Back in 2009, FICO, creator of the most widely used credit score, released information on exactly how some common credit hiccups affected their credit scores. Here’s a look:

  • Maxed-out card: 10-45 points
  • 30-days late: 60-110 points
  • Debt settlement: 45-125 points
  • Foreclosure: 85-160 points
  • Bankruptcy: 130-240 points

The higher end of the ranges above would generally apply to those with the highest scores and the lower end to those with lower scores. Keep in mind that a perfect FICO credit score is 850, and to get the best possible deals, depending on the lender, you’ll need 730 to 760.

Translating point losses into dollar losses

A bad score means less access to credit and higher interest rates if you can get it. And less access to credit could translate into lost opportunity, which in turn can make a huge difference in your life.

Consider the mother of all debt: a mortgage. Let’s say you’re borrowing 200 grand on a 30-year fixed mortgage at today’s average rates. Show up at the lender’s office with a 620 to 639 credit score, and you’ll pay 4.8 percent. If you make minimum payments, your total interest bill for that mortgage will amount to about $179,000 over 30 years.

But if you waltz in with a 760 score, you’ll only pay 3.24 percent, and your total interest bill over the life of the loan declines to about $113,000. (By the way, the information above came from credit score creator Fair Isaac’s calculator. Check it out for yourself.)

Bottom line? Over the life of the loan, a lousy score in this example cost the borrower $66,000 – enough to finance a business, put kids through college, or retire a year earlier. But wait: It gets worse.

The opportunity cost of bad credit

Another even more dramatic way of looking at the example above is to consider opportunity cost: what money you spend today costs you in terms of the opportunity to have more money tomorrow.

As an example, the low score on the $200,000 loan above means a monthly payment of $1,053 versus $870 for a borrower with the higher score. So the person with the higher score has the opportunity to save an extra $183 every month. If they invest those savings monthly for 30 years and earn 8 percent on them (historically possible in the stock market), they’ll end up with an extra $250,611.

This is one way the rich get richer and the poor get poorer.

Now let’s (finally!) answer James’ question.

When can James stop admitting to a bankruptcy?

As I said above, a Chapter 13 bankruptcy can appear on a credit history for seven years. We know that James’ bankruptcy was discharged in 2006. That’s when he completed his court-approved repayment plan. What he doesn’t say, however, is the date the bankruptcy was filed — that’s when the seven-year clock started ticking. Since repayment plans typically take three to five years, James probably filed more than seven years ago and is in the clear now.

But I think what James is really asking is when he can literally stop confessing he went bankrupt. The answer to that question depends on whom he’s talking to. If he’s talking to the guy sitting next to him on the bus, he doesn’t have to admit it at all. If he’s giving a sworn deposition or applying for a job or loan, however, he should admit it forever. The reason is simple: It’s the truth.

That being said, after a bankruptcy disappears from his credit history, there should be no way for anyone to find out. So if a court, government agency, employer or lender doesn’t ask that specific question, there’s no reason to volunteer the information. But if they do, he should be honest. And he shouldn’t worry too much about it. Bankruptcies aren’t uncommon. It’s unlikely that anyone with good credit today who filed a bankruptcy 10 years ago, especially a Chapter 13, will be harshly judged.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

About me

I founded Money Talks News in 1991. I’m a CPA, and over the years I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: How to Get a Perfect 850 FICO Credit Score Automatically

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,902 more deals!