Various Ways That Bankruptcy May Affect Your Credit

How Will Bankruptcy in Colorado Affect Your Credit Score?

If you are exploring your options with a bankruptcy in the state of Colorado, there are many things to consider when it comes to your credit score. Bankruptcy will initially have a negative impact if you have a solid credit score (650 and above) that includes a long history of on-time payments. In many cases, however, the client is making minimum payments on credit cards but getting nowhere in resolving the debt. So, the credit score looks good, but the reality is they are in a dire financial situation. Most people that declare bankruptcy do so because they have fallen behind on many different debts and already have a number of negative marks on their credit score. Also, many people delay filing bankruptcy out of concern for their credit score. Keep in mind that credit score is not the issue, it’s debt! Credit scores can be quickly returned to “healthy” or “good credit score” after bankruptcy. Put yourself in the lender’s position. If you see that the prospective borrower has been discharged in bankruptcy, the customer can no longer be sued or garnished for the discharged debt. Hence, the borrower no longer is concerned with the discharged debt and has a much greater ability to make monthly payments on new credit.

How Long Does the Bankruptcy Stay on my Credit?

The bankruptcy itself will stay on your credit report for a number of years. Experian reports that a Chapter 7 bankruptcy will stay on your credit report for 10 years and a Chapter 13 bankruptcy will stay on for 7 years. This does not automatically mean that bankruptcy will drag your credit score down even lower and keep it low the entire time the bankruptcy is on your credit report. In fact, many people that go through bankruptcy will see a quick improvement in their credit score once they file for bankruptcy.

A team of researchers at the Federal Reserve Bank of Philadelphia completed a study into credit access for consumers after filing for bankruptcy. They actually found that filing for bankruptcy improved the average credit score by over 75 points when the filer’s case was discharged. This process took an average of 6 months with Chapter 7 and 3-5 years for Chapter 13. Those individuals that complete the bankruptcy process will have better access to future credit opportunities than people that allow their accounts to fall further overdue or keep the negative marks on their credit report during that same time. Again, credit score is not the issue, being financially healthy is. Once you are financially healthy you can make the timely monthly payments that give you a good credit score.

Can I Keep my Home and Car in Colorado with a Bankruptcy?

In most bankruptcy cases, you will be able to keep your home and car if you want. However, it is important to keep an open mind towards the possibility that it may not be the best course of action. LONG & LONG P.C. will review your entire situation and give you all your options so you can make the best decision. Bankruptcy laws allow a filer to exempt $7,500 (in some cases $12,500) of equity in your car, and $75,000 (in some cases $105,000) of equity in your home. All debts are included in your bankruptcy. If you are keeping your house and car you file a statement of intention that you intend to retain the contract and continue to make timely monthly payments under the contract. This is known as a “pass through.” Debts that are passed through are not reported to the credit bureau. Therefore, obtaining a new credit card or store credit after bankruptcy can improve your credit score.

Put a Stay on Pending Lawsuits and Collection Efforts

You will receive an automatic stay on any pending lawsuits from creditors once you file for bankruptcy protection. If a judgment has not been issued or a lien is not in place, then the bankruptcy may end the lawsuit and prevent any further collection efforts. Also, it can prevent a judgment lien attaching to your home. Our bankruptcy specialists would have to review the case if a judgment has already been obtained against you. However, if the process is more complicated, it will require additional efforts by our team. In some cases a motion to avoid lien may be indicated. If granted, this would void the lien on the home.

How to Take the Next Step Towards a Better Financial Future

At LONG & LONG PC, we have guided our clients through our three step approach to debt resolution since 1983. We will help you find the best strategy to resolve your debt. You will be guided through the bankruptcy process by a former United States Bankruptcy Court Trustee. Finally, we will help you map out your financial future so you will improve your credit. The goal of our firm has always been to give every client a path to financial security. Call us today at (303) 832-2655 to schedule a free consultation.