Have you been wondering what happens to your credit score after bankruptcy?

Well, for some time before our bankruptcy, our scores (mine and my wife’s) were in the mid-600s. We both continued to get credit card offers until we were late with payments.

Since I filed for Chapter 7 in August 2008, it tanked. I am not sure how much exactly, but here is the current score (drum roll please …):

570 – I at at the 9th percentile of credit scores. Whoo-hoo! I am better than 9% of U.S. consumers, and I just got my chapter 7 discharge!

FICO Score in March 2009

Here is what MyFICO.com says about my score:

Your score of 570 is well below the average score of U.S. consumers. Most lenders consider this score an indication that you are a risky borrower. Based on your score alone, you might expect the following:

• While the types of credit available to you may be somewhat limited, some lenders may approve your loan application, but possibly with higher interest rates and/or with more restrictive terms.
• Lenders may require additional information to help them evaluate your application for credit – factors such as your income or time at job may be reviewed.
• You may be requested to provide an upfront down payment or security on the loan before approval

On the poor to excellent continuum, I am just a shade better than very poor. As expected, the credit score after bankruptcy dropped. But since I now have no debts except those that I reaffirmed (first and second mortgages, two very small loans on our cars), I expect it to improve over the next few months.

Note that I do not plan to get any loans or need credit right now, so this is OK. I still have a second mortgage with a line of credit. I could borrow from that in emergency. But I will try not to.

I will be trying to improve my credit score by getting a secured credit card, and making sure I have no negative marks on my credit report (excepting the Bankruptcy).

I recommend using the free trial from MyFICO to get your credit score after bankruptcy, or preferably before you file. I DO NOT RECOMMEND the creditreport.com or freecreditreport.com websites. That is the subject of another post! Scam alert – you have been warned.

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Technorati Tags: Bankruptcy, credit after bankruptcy, credit score, rebuilding credit

Just received a letter, dated from last week, very brief. It just says:

It appearing that the debtor is entitled to a discharge.
IT IS ORDERED:
The debtor is granted a discharge under section 727 of title 11, United States Code, (the Bankruptcy Code).

But – we are not done yet. There may be months before this case is done. The Trustee needs to grab my 2008 Income Tax refund, and distribute whatever other assets of ours he has now to the creditors. My attorney says this could take six to nine months.

Also, this means that debtors cannot hassle us (they haven’t since filing anyway), and we don’t have to re-file under Chapter 13. I am still paying our first and second mortgages, and payments to our parents on car loans. We will be “reaffirming” those debts, so those debtors still keep getting payments, since these are secured debts.

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We had quite a scare. A letter from the Trustee said he was having an auction and selling the non-exempt property that we offered to buy back for $1200. We thought WTF! “Did you let us make an offer to keep our stuff just as an evil tease?” Our parents gave us the money as Christmas presents so we could keep items that were not on the exempt property list.

Turns out that the auction is a formality. You can come and out-bid us if you want, but our stuff is only worth what we offered, maybe less. I just don’t want the hassle of buying new skis when my six year old skis and 20 year old boots work fine. My wife wants to keep some jewelry her mom gave her a long time ago.

Update: Jan. 14. We went to the Trustee’s office, to see if by chance, someone might be there to out-bid us. There was no one else there. The Trustee said (to no one) “anyone here prepared to make an offer on this auction? No – sold.” And that was that. He said we could have called first, and not had to make the trip. So now he has $1215, and that might be all we have to pay to our creditors.

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I already wrote that just a few days ago I got a credit card offer. Well add another offer – for an auto loan. Yes, I am in bankruptcy, they know that, yet I could get a car loan for $7500 to $35,000!I wonder what the interest rate is? 20%? Well it would be a secured loan, they could repossess the vehicle if I defaulted, and I cannot declare bankruptcy for eight more years.

I actually could use a new car, my convertible leaks, has bald tires, needs A/C fixed, etc., etc. But I think I will pass on getting into credit trouble for now. I will try to save some money for either fixing the old ‘95 LeBaron, or getting a newer (used) car for cash at some point in the future.

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I am clearly flagged as “Bad Credit Risk” due to my filing of bankruptcy. The credit reporting agencies all show the bankruptcy.

So today I got my first offer of a credit card!! So much for bankruptcy killing your credit worthiness.

Now, of course, my credit rating is bad, really bad. So this credit card offer is bad too. The fine print says that I could get a credit line up to $1500. I would have to pay an annual fee of $69, and the interest rate would be 23.90%. I might only get the minimum credit line of $200. They would charge the annual fee to the credit card, so I would start out paying them interest right away!

Why would someone want this? I sure don’t.

It is a way to re-establish your credit worthiness. You are paying for the privilege of having a credit card. You make regular payments, and your credit score starts to rise. Eventually, you could get a higher credit limit, lower rates, a card without the yearly fee.

But should you get one? I would wait. I don’t want to get back into credit card dependency again. If I were to default on a credit card (or other loan) during or after bankruptcy, I would be stuck with the debt. It cannot be discharged, and you cannot file another bankruptcy for eight years.

Here is what an article from MSN Money says:

• Nothing in credit is “forever.” A bankruptcy legally can remain on your credit report for up to 10 years, but its effect on your credit score can start to diminish the day your case is closed — if you adopt responsible credit habits such as paying your bills on time, using only a small portion of your available credit and not applying for too much credit at once.
• You have to get and use credit to build your credit score. Living on a cash-only basis may be a smart choice for those who really can’t handle credit. But if you want to rebuild your credit score, you can’t sit on the sidelines.

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Technorati Tags: credit after bankruptcy, credit cards, rebuilding credit