The Chapters Of Bankruptcy And Their Benefits – Attorney John Morgan Explains

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John Carter Morgan

98 Alexandria Pike,
Suite 10,
Warrenton,VA 20186
United States
(540) 788-2273

11325 Random Hills Road,
Suite 360,
Fairfax, VA 22030
United States
(703) 664-1912

8607 Mayland Drive,
Richmond, VA 23294
United States
(804) 417-4905

The law is that any negative information can stay on your credit report for up to ten years. The filing of a Chapter 13 shows the world that you paid your debts; doesn’t matter if it was only one percent in a Chapter 13. Also, the credit reporting agencies are more generous in their scoring to folks who file for a Chapter 13. The issue is debt to income, and any bankruptcy improves your debt to income ratio, effectuating an increase in your score, even if there is an initial negative hit. When you go to get more credit, you can say, “I paid my creditors” even if you really only paid them one percent. Psychologically, the filing of a Chapter 13 indicates a willingness to pay creditors. And even if it was by necessity that you have filed, you still paid your creditors some or all of the debt. That looks better for your credit score. It also looks better to other people that you have paid your creditors. Conversely, in a Chapter 7 you obviously did not pay them. Your credit report is required by Federal law to be accurate, so after you file each debt entry should say something like, “Included in BK”.
We find that unlike twenty years ago, people are not receiving 100 point negative hits for filing a bankruptcy. There is a “sweet spot” between a 600 score and a 700 score where people are getting a ten to a fifty point negative hit. But that doesn’t last too long, because of debt to income ratio giving them a boost. We have seen many people who are in the low 500’s who filed Chapter 7 and their credit score actually increased right after they filed. The credit reporting agencies gave them the benefit that they took some initiative to solve their credit issues. We see the same thing with people who are above a 700 – no negative hit at all! If they have not shown any 30, 60 or 90 day late pays before they filed, the credit reporting agency does not penalize them for having filed the bankruptcy. They will not reduce their credit score very far. We even had a person whose score was at 760 and after he filed Chapter 7 he went to a 763. Recently, we had a lady whose score was a 435 and she called us three weeks after filing to announce to us that her score is now 575! She is so happy! Three weeks after filing her case, her bank gave her an unsecured credit card with a $400 limit, and her kitchen table was covered with envelopes from various automobile dealers that proclaimed on the outside, “Bankruptcy – No Problem! Buy your next car from us.”