I am ready to scream. I’m reading a recent article in the Erie Times-News. The headline says “Pitfalls can damage credit scores.” Thankfully, it is a small article and is tucked into the very far right lower corner of the page, because it cavalierly talks about bankruptcy and credit, gives no context, and for many of our clients, it is simply wrong.
This is the sentence in the article that makes me want to scream: “Many people know that making late payments, skipping payments, or filing for bankruptcy are ways to ruin their credit.”
This is where I scream.
Let’s get a few things straight. The act of filing for bankruptcy, by itself, will not improve your credit when you file the papers. But many, if not most, of our clients do not have good credit to begin with, and with the enormous debt burden that they are facing, the prospects for improving their credit soon are nil. Why is that? Because the only thing that will get improve their credit will be to start making all of their payments on time to every one of their creditors. And that isn’t going to happen.
What about the debt counseling and debt settlement programs? Same thing… they are not good for your credit and can often delay your return to good credit, even though you may be paying creditors back. How can that be? Because the only action that will help your credit for certain is to make the contracted monthly payments at the time they are due.
So how can a Chapter 7 Bankruptcy actually help? Filing a Chapter 7 Bankruptcy draws a line in the sand on your credit report. It tells those who are looking at your report that you are no longer responsible for those debts. And no longer can creditors add information to your report that you are not making the payments you were supposed to be making. It is your fresh start. You get to build your new credit from there.
Building your credit is your responsibility, but it will certainly be much easier to do so after the huge burden of past debt is long gone. Our clients continue to be surprised at how quickly they can buy a house (two-three years after the end of the bankruptcy), buy a new car (often the day the bankruptcy is over), or sign on a government-based student loan (even inside of the bankruptcy). But it shouldn’t be a surprise: without the huge debt burden, most of our clients become much better credit risks for the lenders.
So before you listen to your friends who heard this or saw this, do some homework yourself. And give us a call.