What will bankruptcy do to my credit?

            One of the most common questions I am asked when people are considering bankruptcy is “What is going to happen to my credit?”

            The answer is “it all depends.”  There are numerous different scoring models, created by many different companies.  The most common is the FICO score, created by the Fair Isaac Corporation.  Unfortunately, Fair Isaac Corporation and their competitors do not disclose the formula used to calculate your credit scores, so nobody can tell you exactly what will happen to your credit score when you file.

            Some people file bankruptcy while their credit score is still very good.  For instance, if you have always paid your debts on time and have a significant amount of debt, your score may be very high.  However, if you have lost your job and know that you will not be able to make payments going forward, you may consider bankruptcy.  If this describes you, you will likely see a decrease in your credit score, simply because a perfect credit score has nowhere to go but down.

            However, most people who file bankruptcy have several late payments, repossessions, foreclosures, collection accounts, judgments, and/or charge offs on their credit report when they make the decision to file bankruptcy.  These people go into bankruptcy with a very low credit score and they actually see an increase in their credit score, simply because it has nowhere to go but up.

            When creditors see that you have filed for bankruptcy, they see you as a good credit risk.  First, all of your accounts will show a $0 balance and a $0 monthly payment, leaving you more money to pay your new debt.  Secondly, you can only file Chapter 7 bankruptcy once every 8 years, so they know that if you fail to pay, they can simply garnish your wages or bank account without fear that you will file Chapter7 again (although you may be able to file a Chapter 13 before then).  Third, they are not concerned that another creditor will garnish your wages or bank account leaving you without money to pay them.  Finally, people who file a Chapter 7 generally are trying to reorganize their life, pick up the pieces, and turn over a new leaf.

Often people think that they will not be able to get credit for ten years after bankruptcy.  That is simply not true.  While it is true that a bankruptcy shows up on your credit report as a public record for 10 years, the impact will be reduced as time goes on.  In fact, most of my clients receive offers to obtain credit cards or purchase cars right after filing bankruptcy, often at better interest rates than their friends and family who have not filed bankruptcy.  If you maintain any new accounts that you get after your bankruptcy discharge, you will have excellent credit in no time!

If you would like to discuss your specific situation, contact Simplified Document Solutions-$249 Bankruptcy  by calling (678) 490-5841.