Bankruptcy in Massachusetts and the New Credit Score – FICO 10T

Do you want a perfect 850 FICO score?  Well only 1% of folks have  it and it just got more complicated to reach that goal.  The new scoring may divide the high scorers from the bottom folks more than ever.  Note that currently only about 20% of Americans have a credit score above 800.  The biggest change is how your payment history trends to create a “smoothing effect” over time.    The effect may be that auto lenders may approve of more applicants.  Once in effect, this will help folks who have filed for bankruptcy protection and work hard to build up their credit.

No matter what FICO scoring your creditors will use, to enhance your credit score following the basic rules:  don’t pay your creditors late, keep your credit utilization ratio low and don’t keep applying for new credit.

But how is the scoring changing?

How is FICO 10T Different from FICO 8 and FICO 9 and What Does it Mean?

FICO, the great big credit scoring entity that everyone refers to, changes its formula every few years.  In 2009, it was FICO 8.which is still used by some lenders.  It entails various characteristics such as penalizing you for using a high percentage of your available credit; numerous late payments are detrimental (but not a single late payment); nominal collection matters are inconsequential; being added to a friend’s credit card to boost your credit doesn’t!

In 2014, FICO 9 was released.  More and more lenders are now using the FICO 9 formula.  The changes were incremental, but perhaps significant to some.  For example, paid off accounts are ignored (rather than boosting your credit).  Unpaid medical bills are not generally heavily weighted.  And for renters, your history with your landlord is featured on your credit report.

FICO 10, fresh off the books and not even being used yet, adds a few features to the labyrinth of credit scoring.  This new and improved scoring method seems to be out of a Facebook algorithm –  it uses “trended data” over the two prior years to review credit card balances, payment activity and loan payment history.  Note, it gives more negative weight to recent late payments than distant tardiness.

Bankruptcy in Massachusetts Post Coronavirus

Unfortunately, Burns & Jain is expecting an upsurge in chapter 7 personal bankruptcy filings post coronavirus.  Many clients have been or will be laid off.  Folks are behind on rent, not able to pay more than the minimums on their credit cards, and seeking family and personal loans.  Credit cards are being used to buy essentials but there may not be the ability to pay them off, especially for folks who are unemployed or underemployed.

“It is never too soon to undertake bankruptcy planning,” reports Attorney Neil Burns.  That is, utilizing the allowed bankruptcy protections, not making transfers that could be considered fraudulent, and working toward discharging your debts and getting the fresh start envisioned by the federal bankruptcy laws.

Note that the feds relaxing of 401k withdrawal laws is for the 10% penalty, but not for the tax on the withdrawal.  Consider paying the tax right away and withdraw only as much as you need.  This is important because you don’t want to withdraw too much and disqualify yourself for a chapter 7 personal bankruptcy.  Contact an experienced bankruptcy lawyer or tax professional before you undertake such major financial transactions.

Burns & Jain For A Free Bankruptcy Consultation

Attorney Neil Burns has been practicing bankruptcy law in Massachusetts since 1985.   He informs that getting a “fresh start” has provided hundreds of clients with satisfaction and enabled them to buy cars, homes, and even keep their homes while discharging all consumer debt.  He emphasizes planning to save you and your family money.  Call Burns & Jain for a free consultation.  617-227-7423.