Attorney at Law
Using Bankruptcy to Repair Your Credit
People who come to me about bankruptcy are often concerned that it will hurt their credit. That is a valid concern for some people, but not for most. The reason is that most people who inquire about bankruptcy already have low credit scores and a bad credit history that, frankly, can't get much worse that it already is. For these people, rather than a black mark on their credit report, bankruptcy can be a chance to erase black marks that are already there and start over almost like it never happened.
Most of my clients have credit scores in the low- to mid-500's, which is bad. If this is you, cheer up because a Chapter 7 bankruptcy combined with one year of responsible, documented credit usage is likely to improve your credit score between 90 to 110 points. However, you will need to use credit and use it responsibly in order for this to occur. The easiest and safest ways to improve your credit after bankruptcy include home loans you had going into bankruptcy, car loans and secured credit cards, which are credit cards secured against funds you leave on deposit with a bank. For more information about how to improve your credit after bankruptcy, see my post, "Repairing Your Credit After Bankruptcy."
Who should worry about their credit being damaged by bankruptcy? I have had many clients with credit scores in the mid or even high 600's, but who were maintaining those credit scores only by putting a huge percentage of their monthly take-home pay towards existing credit card bills. Bankruptcy does, technically, hurt those people's credit scores, but I question whether there is really any alternative to that damage. In other words, I believe that these people's credit was already doomed due to snowballing interest on their credit cards and other debts, and it was only a matter of time before they became unable to make their monthly payments and defaulted, ruining their credit anyway. The bottom line is you have to be honest with yourself and face the truth: If you are going to be able to pay your bills not only today but in the long term then fine, but if you are stuck in an endless cycle of debt and interest payments it makes sense to admit to yourself that you are in over your head and seek legal counsel as soon as possible to find out what your options are.