Bankruptcy and your credit

We are attorneys providing debt relief advice and representation. We help people obtain debt relief under the Bankruptcy Code and other laws.

Your credit rating is important, but it may not be the most important concern if you are having problems with debt.

There is no doubt that bankruptcy will damage your credit score. This damage, however, is not permanent. The damage is more serious for someone with a good credit score than someone who already has fallen behind or defaulted on debt payments, or who is being chased by debt collectors or is being sued.

The damage to your credit standing is not necessarily the most important consideration if you are under financial stress, and must be put in proper perspective. Too many people we see are so concerned about having “bad credit” that they delay taking action and make a bad situation much worse. They try to pay keep up with credit card debt they cannot afford, while letting mortgage payments or taxes fall behind. For many of them, their credit standing is already poor, or inevitably is going to be poor. We have seen people who barely have enough income to pay the mortgage and meet basic expenses, yet try to pay credit cards they cannot afford out of concern about their credit score. They would rather put their homes or their health at risk than face up to the serious problems they are in!

The first goal is to take control of your life. Put together a budget, comparing total monthly income to basic monthly expenses for food, housing, transportation and basic needs (but not credit cards or loans other than car loans or mortgages). With this, we can help you look at all your options so that you can make the choice that is right for you.

Visit our resources page for links to some informational sites and resources

Here is our budget form (Microsoft Excel required)

Here is another form for use with our bankruptcy questionnaire

Bankruptcy can help you get back to better credit scores sooner.
For many people with serious debt problems, a bankruptcy can actually improve their credit score. And by removing an overwhelming debt burden, a bankruptcy can help you “get back on your feet”, and straighten out your finances. Instead of struggling to pay debts beyond your means, wallowing in bad debt for months and years, you may find that a bankruptcy discharge speeds your return to good credit standing. See credit score factors, below.

As we discuss below, your payment history is a big factor in your credit score. If you are "robbing Peter to pay Paul" you are not helping your credit score. You are making it worse.

We can help you sort things out.

Some things you can do after a bankruptcy to restore your credit standing.

• Create and stick to a budget, and spend carefully
• Start creating a new credit record by using the credit you have carefully. Pay whatever debt you have, such as a mortgage or car loan or lease, on time. This creates a new history of payment on time.
• If you have a credit card, use it, but keep the cash aside so you can pay it off each month. We often recommend using the card only for gas, or for a limited maximum dollar amount each month.
• However, before you obtain any new credit, make sure there is room in your budget so you can afford to make the payments. And this does not mean making the minimum payments on a credit card. Making only minimum payments, you could end up having to pay over 10 years.

Make sure your credit report is accurate. Dispute any debt balance that was discharged in your bankruptcy to reduce your outstanding debt total.

A bankruptcy discharge will remove a lot of unpaid debt and will improve your credit score. Those debts will stay on your record for seven years, but the total of outstanding debt, after bankruptcy, will be much smaller. This can actually help most people. However, this does not happen automatically. You need to take action.

After your bankruptcy discharge, go to www.annualcreditreport.com to get your free annual copy of your credit reports from all three credit reporting agencies. Check the listings against the debts you listed in your bankruptcy on Schedule F (unsecured debts). Every one of those debts should be listed as having a zero balance or as having been discharged in bankruptcy. Most likely they do not.

File a dispute of each of those debts. We suggest sending a letter stating to each agency disputing the debts listed with unpaid balances. The letter should say you have received a bankruptcy discharge of your debts. Provide a copy of your Schedules E and F, and a copy of your discharge. List the specific debts on your credit report that have been discharged, but are still showing as having a balance due. Be specific. State that you are "disputing" each of those debts. Demand that they "investigate" and "correct" your report to show each of those debts as being discharged in bankruptcy, with a zero balance.

Your credit report is important, but you have to defend it.

Keep a written copy of any disputes or requests to correct your report that you make. This may be important. You should see results within 30 days or so. If you are not satisfied, you should see a lawyer right away, as you may have rights that can be lost in as little as a year.

Follow up. The agency should confirm that the changes you have requested have been made. Ask for a copy of your corrected report. Most importantly, begin checking your report each year. Since credit reporting agencies rely on reports from lenders and creditors, the discharged balance could show up again. If this happens, file a dispute right away, and see a lawyer, since the creditor who filed a false report about a discharged debt may have some liability.

The factors that affect your credit score.
Your credit score is compiled from your credit history, using a formula. There are five major factors that go into this calculation:

1. Your payment history. This is the major factor. This is why it is important to re-establish a good payment history as soon as you can.

2. How much do you owe compared with how much you could borrow. Being “maxxed out” is bad.

3. How long is your credit history. The longer you have been using credit wisely or well, the better your score. Avoiding all credit is not helpful, unless you cannot to pay any debt. Keeping some credit “running” after a bankruptcy can speed the return to a better credit score.

4. How much “new” debt you have. Opening a lot of new accounts or applying for a lot of new loans is not a plus.

5. The types of credit you have. Having different types of credit, such as mortgages, car loans, and credit card debt improves your score.

For more information, go to www.myfico.com to learn about credit scores and how they work.

Most importantly, do not get into debt you cannot afford. Know your budget. We can help you put all this into the proper perspective, so you take control of your lives.

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Steven R. Neuner our bankruptcy partner, has seen these mistakes played out first-hand, as a trustee himself or as an attorney for other trustees, or in representing creditors. He has filed or presided over hundreds of bankruptcy cases and proceedings over the past 24 years. For more about him and his background click here

How we can help you take control of your life.
Feel free to call us, after you have reviewed our disclosure page. The initial telephone consultation is always free.

Usually, we will want to see you in the office. To make the best use of that meeting, we urge you to download and fill out our client questionnaire, (click here if you have a business, or click here if otherwise). If you have Microsoft Excel, you can download and complete our personal budget spreadsheet

For more resources and information please see our pages on: Frequently Asked Questions, and Links to Important Resources on Bankruptcy, Resources on Credit, and Avoiding Identity Theft.

We will take the time to talk over with you all your options and to help you with the planning process that will help you take control of your life. When you leave our offices, you will either have a plan or be.

IF YOU WOULD LIKE OUR HELP, WE ASK YOU TO CALL US AT (856) 596-2828 FOR AN APPOINTMENT. Please first read a notice about bankruptcy required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 by clicking here: