Probably the most commonly asked question during my bankruptcy consultations is “what happens to my credit score if I file bankruptcy?” As you can probably already guess from reading my other blogs, the answer is “it depends.” Filing for Chapter 7 Bankruptcy protection can both easily destroy and “fix” your credit. It all depends on what the status of your credit it before you file. If you have negative credit before you file, primarily due to delinquent accounts, “charge offs”, and/or “collections” it’s a sure bet filing Chapter 7 Bankruptcy protection will actually increase your credit scores. However, if you are current on all your contractual obligations before you file and your credit is immaculate, it’s a sure bet that filing Chapter 7 Bankruptcy protection will cause your credit scores to take a hit. Here’s why. Say your FICO credit score is 520 due to missed payments, collection accounts, charge offs, and/or high balances and you are considering filing for bankruptcy. If you file Chapter 7 Bankruptcy your creditors are notified by the Bankruptcy Court of the filing. Once your discharge has been entered your creditors must update your credit report to reflect the account as being “discharged in bankruptcy” and must change the balance owing to “$0.” The ongoing derogatory reporting must now permanently cease pursuant to the court order. The result is a numerically higher FICO score. It is not uncommon to see that 520 FICO score jump to 650 within a year. With a little TLC and triggering the dispute process with respect to the Fair Credit Reporting Act, it is not uncommon to increase your score even further after your discharge.
On the flip side, if you have high FICO scores but find yourself never getting out debt, discharging that debt in bankruptcy may will be worth the temporary hit to that precious FICO score. The social stigma that bankruptcy destroys your credit is slowly being eroded. In many instances it is easier to underwrite a freshly discharged Chapter 7 debtor than a person burdened with debt on the edge of bankruptcy. With the skyrocketing number of bankruptcies in recent years the pool of potential customers to the credit industry is too vast and large to simply shun away. The freshly bankrupt are people with ZERO debt and these potential customers can’t discharge their new debts in bankruptcy for 8 years! You can’t beat that! Finally, the capitalistic economy we live in only drives fierce competition amongst lenders to entice borrowers with competitive financing terms.
Written by Michael G. Doan–
Owner of the Oceanside Bankruptcy Attorney office, Michael not only manages his business, but is also a highly skilled San Diego Bankruptcy Attorney with over 20 years of experience. He specializes in many fields, such as: insolvency, bankruptcy, consumer rights, debt negotiation, creditor collection abuse, estate planning, contracts, real estate, and tax. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California. Mr. Doan also practices on the cutting edge of bankruptcy law, and was the first attorney in the entire Southern District of California to file the very first Chapter 7 Bankruptcy and very first Chapter 13 Bankruptcy under the new Bankruptcy Laws which went into effect on October 17, 2005.
The San Diego Bankruptcy Attorneys of Doan Law Firm
The San Diego Bankruptcy Attorneys of the Doan Law Firm, California’s Largest Family of Attorneys, Specializing in Bankruptcy, and Non-Bankruptcy Alternatives.
At Doan Law our Bankruptcy Attorneys will answer all your Chapter 7 and Chapter 13 Bankruptcy questions. Call us now to meet with one of our expert bankruptcy attorneys, at any of our San Diego Bankruptcy offices, call (760) 450-3333.
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