A Recent Case Study

I wanted to show a recent Chapter 7 case that I filed. This is a married couple with two young children. They owned a home, and were up-to-date with their mortgage. Unfortunately, they had taken out a home equity loan several years ago in an attempt to pay off credit card debt, but despite their best efforts, they had a lot of debt. Specifically, they were facing $125,000 in credit card and other personal loan debts. These debts are increased considerably due to wife having been unemployed for some time.

Prior to filing their Chapter 7 case in June 2013, their credit scores were 535, 523 and 491 for husband and 535, 518 and 493 for wife. Their Chapter 7 Meeting of Creditors was 42 days after their filing date and the Chapter 7 Trustee signed off on their case after this meeting. All of their assets were fully protected by the bankruptcy exemption laws, so they were easily able to protect their house and personal possessions.

They received their discharge order in early October, exactly 112 days after their case filing date. Thus, their case was then closed in court.

Credit Scores After Bankruptcy

They asked me to check their credit ratings after the bankruptcy filing. So, their new credit scores are 610, 607 and 596 for husband and 639, 609 and 607 for wife.

The reason that their credit scores improved so much was that all of their debt has been archived under a section of their credit report entitled “debts included in bankruptcy”. Once a credit account is archived, it can no longer negatively affect the credit rating.

Nevertheless, I have suggested to them that they apply for a small credit card and use it each month for small purchases. If they pay off that account each month, then after 6 to 12 months, their credit ratings should improve considerably, hopefully to 650 or even 700. (note that the goal is to improve your credit rating over 700).

This case study is a fairly typical example of how bankruptcy can improve your credit, despite what you might hear about the “myths” of bankruptcy. Here is another blog post on rebuilding credit after bankruptcy from the past about this same subject.

Let me know if you have questions or comments!

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