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How Bankruptcy Actually Improves Your Credit

access_time Posted on: June 3rd, 2019

Misconception About Consumer Bankruptcy

Article by: Haley Rohrbaugh, Esquire

CGA Law Firm Attorney; Haley Rohrbaugh

A common misconception about Consumer Bankruptcy is that it devastates your credit. When I meet with potential clients for an initial consultation, most are surprised to find that a Bankruptcy filing will actually improve their credit score.

Credit scores are based on several factors including:

  • Credit limit usage. Using more than 50% of allowed credit limits will negatively affect a consumer’s credit score. (For example, a credit card with a $1,000.00 credit limit holding a balance due of $500+ will cause credit scores to decrease); and
  • Debt-to-income ratio. Having high levels of debt compared to household income will also decrease credit scores.

However, the filing of a Bankruptcy causes a consumer’s reported debts to decrease to $0.00, thereby also eliminating credit limit usage and drastically increasing a Bankruptcy filer’s credit score.

Here at the CGA Law Firm, the Bankruptcy Department uses a software program to pull credit reports and scores from all three credit reporting agencies in order to capture all reported debts. Our software also performs an analysis to estimate our clients’ credit scores 12-months after filing Bankruptcy, and it is often a 100+ point increase.

The Bankruptcy itself will be listed as a public record on a credit report for 10-years, but many companies will extend credit immediately after the Bankruptcy filing. In fact, according to FHA and HUD resources, loans for FHA backed mortgages only require a minimum of one (1) year from a Bankruptcy filing under certain circumstances in order to qualify.

Bankruptcy allows for a new beginning. We are here to help. It is always refreshing to see the transformation in our clients’ lives as we walk with them down the Bankruptcy road and into a new beginning. If you or your loved ones are feeling overwhelmed financially, it is worth it to visit the CGA Law Firm and talk about getting a fresh start.