Written by Charleston Bankruptcy Lawyer, Russell A. DeMott
This isn’t the first time I’ve written on bankruptcy and its effect on your credit score. In “How Long Will Bankruptcy Screw Up My Credit,” I addressed this topic. That post stresses that your credit score should not be your primary concern when you file bankruptcy. It also states the obvious: Your credit score is very likely already “screwed up,” and bankruptcy can only help it, not hurt it.
But despite the fact that I’ve essentially said, “don’t worry about your score,” I’ve been checking on some clients from time to time. As with mutual funds, “past performance does not guarantee future results.” Still, I’d like to share two clients’ stories with you.
In one case, the client got her bankruptcy discharge (the order the court issues stating that the debtor does not owe the debts) about two years ago. She had significant consumer debts–lots of credit card debt and an automobile deficiency. Her credit score is now a 660. This is particularly impressive given the fact that she has at least one creditor (whose debt was discharged in the bankruptcy) incorrectly reporting a monthly default in payments on her loan as if she’s currently failing to make payments on that loan. She’s not of course, but that’s because it was discharged in bankruptcy. Still, she has a 660. It should rise even higher once we get the creditor to begin reporting the loan as discharged in bankruptcy, instead of not being paid each month. (Stay tuned for a future post on your rights under the Fair Credit Reporting Act.)
In the other case, the couple received their discharge only six months ago and has a credit score of 618. Now, 618 isn’t all that great, but after just six months post-bankruptcy, it’s not too shabby. I’d expect their score to be approaching 650 to 700 in about three years. (Again, I’m guessing here, but guessing based on what I’ve seen with other clients.)
A good score
Most financial experts say that a score over 725 is a “very good” score. “Excellent” means a score of 760 or above. I believe 640 is a threshold score–a great “first step” in getting your score up. That’s because as of right now, you need a 640 credit score to be approved for an FHA mortgage loan. My client with the 660 should now qualify. More importantly, her debt-income ratio is now close to perfect. She has a modest used car loan, and that’s it. Prior to filing, she was a bankruptcy waiting to happen with a debt-income ratio on life support. Now, in a few months, she’ll be able to buy a home with an FHA mortgage loan.
There is life after bankruptcy
As one of our Chapter 7 trustees likes to say, “There is life after bankruptcy.” There is, and I hope these stories help some of you realize that bankruptcy is about healing, new beginnings, and a fresh start.