Filing For Bankruptcy Can Help My Credit Score?
By Kevin Gipson, New Orleans Bankruptcy Attorney on Jul 8, 2007 in Benefits of Bankruptcy, General Bankruptcy Information, Louisiana
A fellow Bankruptcy Law Network contributor, Stephen Otto, in his article “Applying for a Car Loan after Bankruptcy” cites to an interesting article in Smart Money.
In the Smart Money article, the author, Aleksandra Todorova points out that your credit score can improve after filing for bankruptcy. The main reason why your score can improve is that most people struggling with debt already have problems with their credit score such as late payments and high balances which drive your credit score downward.
So how does filing a bankruptcy improve your credit score?
The answer is that if your bankruptcy is correctly reported, your credit report is wiped clean.
By saying that your credit report is wiped clean I mean that, if reported correctly, your high balances are removed as are any late payments or records of unpaid debts. Instead, the accounts included in the bankruptcy should be marked as “Included in Chapter 7 Bankruptcy” or “Included in Chapter 13 Wage Earner Plan,” depending on the type of bankruptcy you have filed.
In the long run a bankruptcy can help your credit score.
When calculating scores, the formulas developed by the Fair Isaac Company (your FICO score) are set up to grade someone’s creditstanding as compared with that of
consumers in a similar financial position. In other words, you credit worthiness is compared to others who have filed for bankruptcy, not against someone with excellent credit.
Finally, you probably noticed that though out this article I state what “should happen” if “you credit report is correct”.
A common problem in the credit reporting industry is the mis-reporting of debt after bankruptcy.
To read more about the subject of mis-reporting, consider the following articles by other BLN contributors: “Your Credit Report After Bankruptcy” by BLN member Jay Fleischman, “Disputing Credit Reports” by BLN member Nicholas Ortiz and “Can I Legally Clear Bad Debts From My Credit Report?” by Brett Weiss.
Frank Bruno | Jul 24, 2007 | Reply
I hope this article helps your clients who need to quickly raise their credit scores for the loan approval process or for the best possible interest rates.
How Credit Expert Frank Bruno Raised His Credit Score 40 Points in 24hrs.
Also your clients may be interested in watching Free Credit Tip Videos here