Filing For Bankruptcy Can Help My Credit Score?

08 Jul Filing For Bankruptcy Can Help My Credit Score?

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 credit standing 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.

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I've been a consumer bankruptcy lawyer for nearly 25 years. Since that time I have helped many people resolve their financial problems. I have been practicing law since 1986 and I am licensed to practice in all state and federal courts in the State of Louisiana. Because I am a sole practitioner, you know that your debt matters are being handled by me personally. In addition to my work with consumers, I am also frequently asked to speak at local seminars on bankruptcy law. I am member of the following organizations: • Louisiana Bar Association • National Association of Consumer Bankruptcy Attorneys • Bankruptcy Law Network My office is located at: 3920 General DeGaulle Drive, New Orleans, LA 70114 Telephone: (504) 368-4101

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