Bad Credit Strategies: Part 2 Public Records

What do public records on credit reports include?

First, lets establish that a public record is information about you that are on file with courts. Information that you are not allowed to hide, hence the name “public”. Here is a list of different types of public records:

  • Birth/Death records
  • Marriage/Divorce records
  • Tax Liens
  • Arrests records (especially Sex offenders)
  • Civil judgments ( Evictions, lawsuit, etc)
  • Bankruptcy

Typically when a public record is added to your credit report it has a negative affect. Civil Judgments, tax liens, repossessions, and bankruptcies are the usual suspects here.

Tax Liens

When you fail to pay taxes to the government (city, state or federal), a “lien” can be filed against your property. Tax liens used to stay on your report forever but luckily for us the policy changed in recent years.

Judgments

If a creditor sues you for an unpaid debt and you lose, the court will enter a civil judgment against you. Judgments used to appear on credit reports, but that’s no longer true. So yeah, you dodged another bullet with judgments too.

Bankruptcy

Bankruptcy however, not so much. It does not completely protect you in the event that you cannot repay your debts. The immediate result of filing for bankruptcy is a public record and lower scores. Also, getting another credit card, or loan, will be much more difficult at first.

How do public records affect credit scores?

Here’s the short answer. Tax Liens and Judgments no longer get reported and thus do not negatively affect your scores. Bankruptcy, however, definitely will be reported.

Bankruptcy comes in assorted flavors. There are six, though our main focus here is chapter 13 and chapter 7 here is a list of the others:

  • Chapter 7: Liquidation
  • Chapter 13: Repayment Plan
  • Chapter 11: Large Reorganization
  • Chapter 12: Family Farmers
  • Chapter 15: Used in Foreign Cases
  • Chapter 9: Municipalities

Chapter 7: Also known as liquidation or straight bankruptcy, is the most common type of bankruptcy for individuals. A court-appointed trustee oversees the liquidation (sale) of your assets (anything you own that has value) to pay off your creditors (the people you owe money to). Any remaining unsecured debt (like credit cards or medical bills) is typically erased. This doesn’t include the types of debt that aren’t forgiven through bankruptcy, such as student loans and taxes. Remember, the court may not qualify you for this type of bankruptcy.

Chapter 13:  Also known as “Repayment Plan” basically reorganizes your debt. The court approves a monthly payment plan so you can pay back a portion of your unsecured debt and all of your secured debt over a period of three to five years. The monthly payment amounts depend on your income and the amount of debt you have. But the court also gets to put you on a strict budget and check all your spending.

How long does public records stay on your credit reports?

The Fair Credit Reporting Act (FCRA) is the federal law which sets rules about the information allowed on your credit reports. Overall, you will see that they are reported 7 to 10 years depending on which state you live in. The same applies to other derogatory accounts such as collections and charge-offs.

Tax Liens and Judgments: even though they are not always reported there is a big BUT..Stated by the FCRA, a tax lien must be removed from your credit reports seven years from the date the lien is paid and released. Unpaid tax liens, on the other hand, never have to be removed from credit reports. So you don’t actually escape from paying back taxes.

How to remove public records from credit reports?

First, understand that creditors(banks, credit card companies, residential land lords), collections agencies, etc., volunteer your payment activity to the 3 bureaus. They are not obligated to report by any law. They do it to keep you in check (accountable). This is why 1 bank may only report to Experian and not Equifax and TransUnion, while the others report to all 3.

When it comes to bankruptcies, there’s very little you can do to remove one from credit reports — unless the information is wrong. Does this happen often? No. How can something like this happen? Well, imagine your mailing address is the same as your father’s or grandfather’s and you have the same name. You are John Smith III, not Jr. not Sr.. In these cases, you can dispute it. This is just 1 of many situations.

On the bright side, it’s also possible to rebuild your credit after bankruptcy, even while the public record still remains on your credit reports. Bankruptcies have less of a negative impact the older they get.

Personal experience: In 2005 I had a public record from an unpaid semester at a Jr. college. The amount was tiny a $1100 by today’s standards but I was broke, and terrible at money management. Later on when it came time to start building credit, there it was, waiting on me. 7 years bad luck seemed like a long time back then. I paid it off eventually and it still remained on my report. No improvement really (+3 points). This was before credit karma existed, and I had no idea how to actually build credit. After the 7 year period hit, it finally dropped off. I did see an increase but nothing significant. There were other factors that were holding my score back at the time (no credit card, no payment history).

Have you ever had a public record?

If so, were you able to build credit with on your report?

Published by jemvolition

Freelance Writer/Author

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