Thursday, October 27, 2011

What is the effect of bankruptcy in my credit score?

 By Atty Crispin Lozano

Question: Will filing bankruptcy damage severely my credit score?
Answer: If you are already 60 to 120 days late in payments bankruptcy will not significantly damage your credit score because you are already low end of the curve.  Credit score is a record of all your credit transactions and is determined by many factors such as late payments, high credit balances, charged off accounts, collection accounts and many more.  All late payments will be in your credit report for seven years until you file bankruptcy.  When you file for bankruptcy, these debts will be marked as “included in Chapter 7 or 13 bankruptcy” instead of being reported with so many late payments.  
By the time you are considering bankruptcy your credit score is already in the 500 range and by filing bankruptcy the reduction in credit score will not be very much.  In reality, after filing bankruptcy your credit score will improve because of the following:
1. The negative reporting of late payments and non-payments will not be reported anymore in your credit.
2. If you file bankruptcy you can start building your credit just after your bankruptcy discharge because there will be no more late payments the lenders will be reporting.
3. If you managed your credit well after bankruptcy, you can achieve a credit score of around 700 within two or three years.
4. Historically, when buying secured properties such as house or car, you would be given credit within three years.  Under the current economic situation when credit is hard to find even for those with a 700 credit score find it hard to borrow money.  Good credit and bad credit does not make big difference nowadays when it comes to borrowing money because banks are not lending at all.
5. You can use your own bank debit card in place of credit card for the first few years after bankruptcy.
6. You can get a secured credit card by depositing money to the credit card company so that you can have a credit card.  This will help you build your credit score.
7. You will have more cash after discharge from bankruptcy because you will no longer be paying bills you were paying before.  Hence, your need for credit is basically eliminated.
Question:   Can I still rent an apartment if I file bankruptcy?
Answer: Yes.  If you intend to rent an apartment, the apartment manager understands the present economic condition where many people filed for bankruptcy.  In order for you to be approved to rent the apartment you may be required or you may offer to increase the security deposit as guarantee for payment of rent.  
Question: Will my employer fire me if I file bankruptcy?
Answer: No.  Government units and private employers cannot fire you for filing bankruptcy because it will be an act of discrimination and it is illegal. 
Note: This is not a legal advice.
Bankruptcy News
1. If you are being sued by your creditors, most money judgment can be eliminated in bankruptcy.
2. Collection actions continue and you can be sued if you are in debt settlement.
3. Chapter 7 will eliminate all unsecured debts.  If you are near retirement age, you must eliminate most of your debts.
4. Bankruptcy will stop foreclosure actions.  If your trustee sale date is 10 days before, you can still file for bankruptcy.
5. If your salary is being garnished, you have a court case about debts or you are being harassed by creditors, bankruptcy can stop garnishment, court cases, harassing creditors and eliminate the debt.
6. Bankruptcy is cheaper, faster and safer than debt settlement which has no guaranteed success.
7. Preserve your health, eliminate stress and live a happy life by eliminating your debts which is the root of all problems.

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