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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

The decision to file bankruptcy is difficult at best.

Image by MyEyeSees via Flickr

Bankruptcy may not be the right solution for you, but you at least owe it to yourself and your family to find out about all of your options so that you can make an informed decision.

Many people are hesitant to even think of filing bankruptcy because they are good, moral, upstanding, hard-working people. They have always paid their bills. And they aren’t the type to look for an easy way out.

So they struggle month in and month out to pay their bills. And all the while their creditors are turning up the heat. Before too long, with all of the late fees, penalties and interest, they realize that they are barely keeping their head above water. And without a miracle or a winning lottery ticket, they know in their hearts that there is simply no way they are ever going to be able to get caught up. More on Filing Personal Bankruptcy – Can I? Should I?

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Technorati Tags: Bankruptcy, bankruptcy attorney, considering bankruptcy, Credit Card Debt, Creditors, File Bankruptcy, filing bankruptcy, Filing Personal Bankruptcy, Financial Stress, Late Fees

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Technorati Tags: Bankruptcy, chapter 13, chapter 7, means test

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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Technorati Tags: Bankruptcy, chapter 7, discharge

Bankruptcy is a legal term for declaring your inability or impairment to pay your creditors. It is apparently an ancient condition, and depending on the culture of each place and time, bankruptcy could place you into slavery to your creditor or allow you to be forgiven of your debts so that you could move on with your life. But even then, you would have to sell off your assets to pay the creditors. And Genghis Khan decreed that three bankruptcies and you’re out (as in death sentence).

Modern times has softened the blow that financial misfortune brings to so many. Our bankruptcy laws are more forgiving now (to the debtors), and creditors have to factor in the risk that they could lose all or most of their investment should their debtors go bankrupt.

I will be writing almost exclusively about United States bankruptcy. That is where I live and is probably where the majority of bankruptcies in the world occur. We are a risk-taking lot, and we save little and spend much. Our advertisers tell us to spend our way to prosperity, and the government tacitly agrees. We get credit card offers continually in the mail, and via advertising elsewhere too. School children are on the marketing lists as potential credit card owners. It will “teach them how to manage their money responsibly”.

So it is no wonder that over one million personal bankruptcy filings will occur in 2008. I suspect, given the current pessimistic outlook on the economy, that 2009 will be a banner year for bankruptcies.

Generally, people feel very negatively about bankruptcy. It means financial failure, and we hate failure. Also, we feel obligated to repay a debt that we initiated ourselves. So bankruptcy means a moral failure to most people too.

But the financial industry expects a certain number of failures. The have the “Law of Large Numbers” on their side. They can use sophisticated computer models to market their credit cards and loans to specific people, as specific times, with specific rates and terms. They know that in the long run, just like a gambling casino knows that the odds are in their favor, they should come out ahead. That is why you have a credit score kept up to date continually using the information stored in the “big three” credit bureaus: Experian, TransUnion, and Equifax. It is your risk factor. A high number, and you get good deals on credit – low numbers mean you might default. (You can get a free credit report once a year, from each bureau, at Annualcreditreport.com, so actually three free reports a year.)

Corporations get graded too, that is how they get their credit through bond offering. If they have a low rating, they sell “junk bonds”. If they had a good rating, but bad times befall them, and their rating drops, they might get caught in a “death spiral”, where the debts in question are called in as due in full. Then to make payment, they get stuck with laying people off, selling valuable assets, and generally ruining the viability of the corporation. Then they declare bankruptcy. For businesses, bankruptcy might allow restructuring their debts so they can survive as a business, and even thrive again as their market turns around.

If this scenario sounds similar to your personal situation,  then “surprise”, you now have “junk bond” status, your assets might need to be sold off to pay your creditors, and you might go down in a “death spiral”. Unless you declare bankruptcy and try to turn your financial situation around.

So do not feel alone. This has happened to others, they recovered, they thrived (eventually, or maybe almost immediately).

Here is a list of over 700 public corporations that have filed bankruptcy in last 20 years.

Here are some notable people who claimed personal bankruptcy:

• Abraham Lincoln (twice)
• Samuel L. Clemens (”Mark Twain”)
• Francis Ford Coppola
• John DeLorean

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Technorati Tags: Bankruptcy