What Will Bankruptcy Do to My Credit Score?
One of the first questions asked by many prospective clients is “How will filling for bankruptcy effect my credit score.” Individuals are often surprised to hear that 1) the majority of individuals that I file for bankruptcy protection get an increase in credit score within 1 year of filing.
By the time people arrive in my office, they’ve usually tried everything to avoid filing for bankruptcy. Often people avoid filing for bankruptcy to “save their credit score” while the whole time, they’re making their future credit score much worse by not filing. There is absolutely no disputing the fact that filing for a Chapter 7 Bankruptcy, or a Chapter 13 Bankruptcy, will effect your credit score, but to what extent? Most bankruptcy attorneys use a credit reporting service designed to estimate a 12 month post filing credit score for that client. I went back and looked at random client files since December of 2004. Of the clients whose estimated credit score was calculated, only one of my clients was projected to have a decrease in credit score 12 months after filing. The total amount of that decrease was 16 points. From 684 to 668.
People young and old are concerned about how a filing will impact their credit. Will they have the ability to buy a home? Will they have the ability to buy a car? How long until they are considered a “safe” credit risk? In a Chapter 7 Bankruptcy Case, a lot of people are surprised to find that they’re flooded with offers for brand new credit cards once they get a discharge. The truth is that a person who recently received a Chapter 7 discharge is without doubt one of the safest credit risks there is. A person cannot get a second Chapter 7 discharge for 8 years after a previous Chapter 7 discharge was entered. Also, an individual cannot get a Chapter 13 discharge for 4 years after a previous Chapter 7 and 2 years after a prior Chapter 13 discharge. What this means is for that time period in between cases, there isn’t any way that anyone can avoid the new debt. It’s a widely held opinion within the Bankruptcy and financial community that a person who has just received a Chapter 7 discharge could be the safest credit risk of all.
The Fair Credit Reporting Act states that a bankruptcy filing cannot remain in your credit report for in excess of 10 years. However, any actual negative impact from the filing has largely diminished in a period of a couple of years with a good payment history. So while most people believe that they won’t be able to get credit for 10 years after filing, that isn’t the case. The majority of people who reestablish a solid payment history over time can obtain a loan for a major purchase with favorable terms long before the previous bankruptcy is removed from their credit report. In my experience, I have seen a couple obtain a mortgage within 3 years of filing a Chapter 7. I have also actively negotiated car loans containing favorable terms during the course of a Chapter 13 Bankruptcy. This isn’t a unique qualification as almost any bankruptcy lawyer can state that he or she has seen and done the same.
Even though credit is abundantly there for individuals who’ve recently filed for bankruptcy, it isn’t necessarily recommended to start up immediately with the credit card offers received immediately post discharge. Credit card debt is frequently what gets people into trouble in the first place. It’s also important to avoid credit repair scams. It is an unfortunate fact, but where there is money, there is a scam. Scam artists know that individuals receiving a discharge have gotten rid of most, if not all, of their preexisting debt. As is obvious, people receiving a discharge are in much better financial shape than any time in their recent past. With an increase in disposable income, there is a large pool of money for scammers to target.
The Law Offices of Michael A. Dye, P.A. is a law firm located in Fort Lauderdale, Broward County, Florida. Mr. Dye is a consumer bankruptcy attorney. The Law Office is a Federal Debt Relief Agency and helps individuals file for protection under the United States Bankruptcy Code. For more information, please call (954)745-5848 or visit http://BKBroward.com.