Bankruptcy can lower your FICO score. Your credit can be adversely affected by bankruptcy. Bankruptcy will appear on your credit report for 10 years from the date of filing.
Bankruptcy
Bankruptcy is a procedure under federal law designed to enable debtors who are unable to pay off their debts to discharge their debts. Bankruptcy is intended to give debtors a fresh start in life. Bankruptcy will discharge most debts except certain debts such as IRS tax debts, child support, alimony, court ordered payments for personal injury claims, etc.
Credit Score
Credit score is a number that indicates your credit worthiness. Your credit worthiness is directly proportionate to your credit score – high credit score indicates better credit worthiness. Generally if you have been through bankruptcy, your credit score will be affected. Bankruptcy will knock 160 to 220 FICO points off your credit score. So if your credit score was 550 FICO points before bankruptcy, post bankruptcy it will range between 330 to 390 FICO points. If your credit was excellent before filing for bankruptcy, then your FICO score will be ruined post bankruptcy. But that’s not always the case. Generally by the time a person files for bankruptcy his or her FICO score is already ruined. So bankruptcy can’t make it worse. In fact it might have a positive affect. First of all the credit bureaus will determining your FICO score will compare you with other bankruptcy filers and not people with good or excellent credit. There are instances where the FICO score actually increased post bankruptcy. Even if your FICO does not increase post bankruptcy it is unlikely to ruin it further. Bankruptcy discharges most debts. So the balance of all these debts will appear as zero on your credit report.
From the lender’s point of view
When you obtain a bankruptcy discharge it means that all your debts (except those which cannot be discharged by bankruptcy) have been discharged. So your future income will be free from the claims of creditors. This is good news from a lender’s point of view. There are lenders who specialize in providing credit to those who have just been through bankruptcy. Lenders are aware that bankruptcy is a life changing experience and a person who has been through bankruptcy will generally be more careful in his financial management post bankruptcy.
Getting Legal Help
If your FICO score is already ruined and you are contemplating bankruptcy filing, consult with an experienced bankruptcy attorney. You may come out of bankruptcy with better credit.
