Minnesota Credit Scores and Bankruptcy

The most common question I get when clients are looking to file for bankruptcy is how will it affect my credit. The answer is complicated in some cases, and not as complicated in others. The first question you should ask yourself is what is your current credit score? If your current credit score is already low, then bankruptcy will probably not affect your score much. The next question is if you have a good credit score currently but are borrowing from Peter to pay Paul, then once you cannot borrow any more and you default on the loan payments, what will your credit score look like. More than likely your credit score will drop sharply and you will still have the debt. You should also consider what is more important to you, having money to save for retirement, your children education, or having a rainy day fund, or keeping your credit score intact. In most cases you would probably be better off without the debt, and then work to rebuild your credit after a bankruptcy. One of the most common bankruptcy myths is it is more difficult to recover your credit score after bankruptcy. This is not true in most cases, since one of the biggest credit scoring factors is your debt to income ratio. If you file for bankruptcy that ratio becomes much more favorable to your situation, since you no longer have the debt, but you would have the same income. The other thing to consider is what your current credit looks like to potential borrowers. If I was looking to borrow money to somebody who has not filed bankruptcy, but had unsecured debt of around 50k and was not current on that debt, and had a lot of missed payments, how likely would the lender be to borrow that person money? Now look at the same person with the same income, except they just filed bankruptcy and now the 50k in unsecured debt has gone away. The lender does not have to worry about another bankruptcy, since they cannot get a discharge from a chapter 7 bankruptcy for eight more years. This is not to day that your credit will improve overnight, it could take a few years and hard work, but the person without debt, will have a better chance to recover than the person with debt. If you are thinking about filing for bankruptcy in Minnesota give one of our lawyers a call for more information. We can give you information that may improve your current financial life.