Washington State Bankruptcy Lawyers

How will a filing Washington State bankruptcy affect my credit score?

Washington State Bankruptcy and

Your Credit Rating

Worried about your credit score after a WA State bankruptcy?

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How Does Bankruptcy Affect My Credit?

How does a Washington State bankruptcy affect my credit rating?

We are often asked how a Washington State bankruptcy may affect someone’s credit.  While the exact mechanisms that the credit reporting bureaus use (the big three are Transunion, Experian, and Equifax) are not public knowledge, we do know what the effects of a bankruptcy can be.

The credit bureaus create a credit score that is based on factors that are not made public.  But a credit score usually goes up about 12 months after filing a bankruptcy for most people that have a lower score to begin with, because their debt-to-income ratio improves.   And FHA rules allow you to get FHA financing to buy a house 2 years after filing a chapter 7 bankruptcy (or you even get FHA financing while IN a chapter 13). Moreover, we regularly have clients receive auto loan and credit card offers right after they file bankruptcy.

How to get a free credit report.

You can get a free copy of your credit report at www.annualcreditreport.com.  This is a website that the three main credit bureaus have created to meet their obligation under the law to give people one free credit report each year.  Look at it carefully, and make sure that everything in the credit report is yours.

How is my credit created?

Your credit history is created by applying for and taking out loans.   If you have never taken out loans, it is unlikely that you even have a credit report.  Lenders report whether you are making your payments on time, how much you owe, and how much your payments are. If you fail to make payments on time (or at all) this can damage your credit.  This can even happen if you do not borrow money, but have a bill that goes into collections.

If you have good credit, then you can borrow larger amounts of money and buy more expensive things on credit.   As some of our clients have discovered, this is not always the best thing, since it can be all too easy to borrow more than you can afford to pay back.  But good credit is important if you want to be able to borrow money on things at a good interest rate, and purchase important things, like houses and cars.  If you have shown creditors that you can be relied on to pay your bills, then it is less risky for them to loan you money.

How can credit affect me?

Nowadays, your credit is used by insurance companies, prospective employers, potential landlords, and others, so a good credit score can be very important.  Bad credit can harm your chances at employment in certain jobs, and can affect your ability to get licenses for certain kinds of work where financial responsibility is an issue.  The best thing to do is be candid if you are given the chance, and explain the circumstances.

Even if you do not file a Washington State bankruptcy, negative credit will still create the same problems, plus the creditors can still sue you to collect.  But bad things can happen to anyone, and many responsible and trustworthy people have become ill (1/2 of people that file bankruptcy do so due to illness), get laid off, or suffer some other economic disaster that leaves them unable to pay their bills. 

Every week we talk to potential bankruptcy clients just like you that are proud of their credit history, and have a great deal of pride that they have always met their responsibilities, but are now in a situation out of their control.  Negative credit from missed payments, foreclosures, and other events can stay on your credit for 7 years, and a bankruptcy can stay on your credit for 10 years.

The main difference is that the debts discharged in a Washington State bankruptcy are not collectible, and debt that is sitting on your credit report IS collectible.   If you were a lender, and you had two people who were identical in every way, except that one of them had never filed bankruptcy and still owed $50,000 in credit cards, judgments, and other debt, and the other had filed a bankruptcy and did not owe any debt, but still had the same income, who would you rather lend money to?

Throw into that equation the fact that the person who filed bankruptcy cannot file a chapter 7 again for 8 years. It’s pretty clear who is the safer bet.  And that is why many lenders will actually specifically send loan offers to people who have recently filed bankruptcy.

The "New Reality"

Over the last few years, our Washington State bankruptcy attorneys have seen an avalanche of good people needing help and protection from their creditors.  We are still experiencing the dramatic affects of the worst economic crash since the Great Depression.  Millions of Americans have had to file bankruptcies each year (about 6,000 PER DAY last year!).  There are about 7,000 to 10,000 foreclosures EVERY DAY in the U.S. right now.  When the dust settles, and we come back out of this recession, lenders (many of whom had to be bailed out themselves) will be looking at a country full of decent hard-working people who have good jobs, no debt, and a bankruptcy on their credit reports.

We believe the lenders will simply see that you filed a bankruptcy when millions of others were forced to as well, and the rules will have to change.  In general, filing a Washington State bankruptcy should be one of your last options.  For people that are about to lose their homes to foreclosure, and have to file a chapter 13 bankruptcy to stop the foreclosure, or people that are being garnished 25% of their wages and losing entire bank accounts, we remind them that their credit is just about the last thing for them to be worrying about at that point.

Getting a fresh start with a Washington State bankruptcy.

But we have seen many people get a fresh financial start, and within about two years be able to get good interest rates again.  They are able to afford to provide for their families without the terrible burden of too much debt. And they are able to purchase houses with FHA loans 2 years after a chapter 7, and get financing for cars months after filing their cases.  None of this would be possible if they let the bills stay there and pile up.
 Come talk to one of our experienced Washington State bankruptcy attorneys.

We offer a free consultation to go over ALL of your options, including non-bankruptcy ones.  We can give you the information you need to make an educated decision about your financial future and whether or not a Washington State bankruptcy should be one of the options that you consider.