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Credit Scores and Bankruptcy

“Credit” from the Latin credere means “to trust.”  It is unquestionable that your credit score is critical these days.  Employers are increasingly requiring permission to secure your credit score before hiring, landlords are using scores to keep low and moderate people out of units, and what you ultimately pay for a car or a home is a function of your credit score as a lower score may result in higher interest rates.

Filing for Chapter 7, or personal bankruptcy, will have a negative effect on your credit score.  Are there any numbers or rules of thumb about credit scores?

How Does Lower Credit Scores Really Effect Our Everyday Lives?

Some facts:  twenty-five percent of employers are using credit scores when considering hiring.  What relevance this has, and how to explain away a medical bill or neglected payment in this situation, is not clear.  We are not employment lawyers; however, we do know that you can correct mistakes in your credit history.  Thus, when looking for a job, get your credit report and review it carefully.  Send documentation to the credit bureaus to prove any incorrect information.

Mortgages pose an equally significant problem.  A difference of about 100 points on a credit score can cost $70,000 more in mortgage interest per $100,000 borrowed.  That’s very significant.  And another argument for checking your credit report, regularly, and correcting mistakes with documentation.

What About Those With No Credit Scores?

What?  No scores by a credit-reporting agency?  Apparently, 4.5 billion people on earth have no credit standing, with over 50 million of them in the United States.   They have insufficient economic behavior – insufficiently reported behavior that is.  Many landlords do not report positive payment history, only negative.  Many minorities and immigrants fit into this category.  Young adults without credit cards too.  A late payment on a student loan can have a severe impact on a recent student’s credit score.  These folks become economically marginalized.

While some lenders take advantage of these economically sidelined people, some institutions are trying to help.  An Atlanta company, L2C, provides alternative credit scores to auto lenders enabling more lower income individuals to qualify for low cost vehicle loans.  They look at actual spending, in addition to reported spending, resulting in higher scores and lower monthly payments.

Progresso is a credit scoring company that works with Hispanics in multiple states.  They look at actual households, which may have multiple non-traditional family members contributing to the rent and car payments.  It reports payments to the credit bureaus thus enhancing many individuals’ scores dramatically.  Mission Asset Fund helps folks with no credit scores and claims that within just over a year 80% of participants secure a credit score, many a high one.

Bankruptcy and Credit Scores

Neither the Bankruptcy Court nor the federal bankruptcy trustee is likely to check your credit report or your credit score.   Your bankruptcy attorney will only use your credit report to double check your creditors, their addresses, and account numbers.
While filing for personal bankruptcy will have an adverse effect on your credit score, it is likely to go up and up after your discharge, with careful management of your borrowing and paybacks.   Many people use the resources provided by companies like L2C and Mission Asset Fund to get their scores up again.  It’s work, but it may be well worth it after the Bankruptcy Court gives you a fresh start.

Filing for Personal Bankruptcy
Retain an expert.  Attorney Neil Burns has been advising clients and preparing bankruptcy petitions since 1985.  The initial consultation is free.  Call 617-227-7423.

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