Tag Archives: credit score

Bankruptcy Alphabet – L is for Life

Life after bankruptcy - what does it look like?

Frequently, I’ll meet with clients who are (understandably) worried about life after bankruptcy. How bad is the worst case scenario? Will I have to live without credit for 10 years? Will I ever be able to rent again? Get a car loan? How about a mortgage?

Clients often associate bankruptcy with being thrown out on the street, all of his or her assets taken away, and picture printed on the front page of the newspaper announcing to the world that he or she filed for bankruptcy. It’s so easy to think that you’ll be branded and you’ll have to wear a scarlet letter around your neck announcing to the world that you’ve filed.

I have news for you. Bankruptcy is about preservation of assets and discharge (forgiveness) of debt. Even though there are a lot of stereotypes and stigmas tied to bankruptcy, it is a perfectly legal and legitimate way for people (and businesses) to get out of overwhelming debt.

Shame, guilt and other emotions about debt

Some of the most common things I hear from my clients are:

I feel so guilty. I feel ashamed.
I am a responsible person.
I never thought I’d end up in this situation.

Being under crushing debt is emotionally draining, puts a lot of pressure on you, your marriage, and your family. (Not to mention, your wallet.) Debt brings up a lot of emotions, and whatever you feel - it’s perfectly normal!

After discharge, you’ll be able to continue to live your life - debt free. All of your future earnings or assets are yours to keep, free from creditors’ claims.

The downside of bankruptcy?

The bankruptcy will be reported on your credit report for up to 10 years. Despite popular belief, this does not mean you cannot acquire new credit for 10 years. Some of the negative impacts of bankruptcy start to diminish as your debt-to-income ratio is improved and your credit score begins to recover.

Most of our clients report being able to get new credit cards shortly after discharge, and in general, you can qualify for FHA mortgage after 2 years.

You may also experience difficulty trying to rent a new apartment immediately after bankruptcy. You can avoid this problem by moving prior to filing. In addition, many landlords will consider overlooking the bankruptcy if you increase your deposit or offer to pay for several months of rent up front. (Read more about renting after bankruptcy here.)

There will be adjustments and challenges. But the point of the fresh start principle that underlies bankruptcy is that there is life after bankruptcy.

Image credit: chrisinplymouth
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Preserving a Credit Score to the Death?

By: Jeff Curl, San Francisco Bankruptcy Attorney

One of my favorite parts of practicing bankruptcy law is the first meeting with a new client. You never know who is going to make an appointment, and why they are coming in the door.

While everyone is unique, I have observed common traits shared by many clients. One such characteristic is the client that tells me he or she had, or still does possess, a really good credit score. Some clients even bring me a printout of their FICO score to prove the high number. While this is partially an expression of frustration and guilt for not repaying everything borrowed, usually the underlying theme is the client feels judged. I get it, I’m not tone deaf. Your credit score is an analytic that is supposed to tell everyone how responsible and reliable you are.

Yes, your credit score matters to the extent you want to obtain credit from a lender in the future or if your landlord or potential employer wants to run your score. People regularly borrow more or drain their hard-earned retirement accounts to preserve their score because they feel so socially vested in this number. But I can say with certainty after meeting with hundreds of clients that what is reported on Equifax, Experian and Transunion and translated into a score is rendered pointless by the harsh reality of our economy. When clients are facing job loss, divorce, a tumultuous housing market, insane credit card interest rates or fewer customers in their store, there is a point where you must a decision to either protect yourself, your family and your business or protect your credit score. What matters most to you?

Photo courtesty of Luigi Diamanti.

How Long Will Bankruptcy Screw Up My Credit?

Written by San Francisco Bankruptcy Lawyer, Jeena Cho

I came across an excellent article by a fellow Charleston Bankruptcy Lawyer. Russell DeMott, which addresses the impact of bankruptcy on credit report. If you are concerned about impact of bankruptcy on your credit report, consider the following:

Your Credit Rating is Already Screwed Up!

My answer to this question is usually the same: “you already have bad credit.” The vast majority of clients who see me are delinquent on their debts. This, of course, is why they came to me in the first place. They have 30 day lates, 60s, 90s, lawsuits, judgments, and everything in between.

Having debts problems is like a tumor, though. You get rid of it two different ways: (1) you pay off the debt–and that’s not an option much of the time, or (2) you file bankruptcy and discharge it. If you do nothing, the tumor just grows and grows. Cutting it out allows you to heal. It allows a fresh start. And remember, for some of you your good credit rating got you into the mess you’re in. It allowed you to obtain too many loans, too many credit cards, insanely high credit limits, and to get just plain overextended. It was the financial industry’s idiotic blind faith in the almighty credit score at work. In case you didn’t know, your credit score doesn’t take into account your income or your assets. Those used to be pretty important for bankers. But those times are long gone. Actually analyzing a client’s entire financial picture would take too much work and require someone to actually think. So we have “thescore.” No thinking. It’s like magic. And that’s likely why some of you fret about the score too much.

Oftentimes, it’s not unusual for my clients to report a big bump in their credit score approximately 12 months after filing for bankruptcy. Why? Because of debt to income ratio.

Okay, okay. But How Long Will it Be Before I Have a Good Credit Rating?

Fair question. After all, you want to be able to refinance your house, buy a new house, or finance a car. For mortgage loans, the bankruptcy will “screw up” your chances at getting a mortgage for two to three years, depending on whether you do a conventional mortgage or an FHA mortgage. Interestingly, foreclosure is far worse than bankruptcy for your mortgage chances. Foreclosure screws you up for four years. So the damage caused by bankruptcy is not forever. And bankruptcy is better than doing nothing and allowing a foreclosure to happen.

This holds true for auto loans as well. In fact, you’ll be able to get an auto loan right after your bankruptcy is completed; you’ll just pay a high interest rate. No worries. The world is awash in used cars, and you’ll get a loan for one. If you must take this route, just don’t get an expensive car. Keep it at about $10,000 or less.

Most importantly, consider the fact that once you no longer have debt, you will be able to save and pay CASH for the things you purchase. That’s right. Cash. I practice what I preach and I made a decision to only buy what I have money for in my bank account. Not based on what I can borrow.

As Russ says…

The real issue is whether or not you can get through your financial problems without filing bankruptcy. If not, bankruptcy is your only option. If, on the other hand, you can avoid bankruptcy, you should. But in either case your credit will recover. You won’t be in financial purgatory forever.

If you need to file bankruptcy, worrying about your credit rating is senseless. If it’s not already bad, it probably will be very soon, whether or not you file bankruptcy. The concern should be solving your financial problems. And bankruptcy helps lots of people do that every day.