Common Misconceptions Regarding Filing Bankruptcy In Maryland
Interviewer: What misconceptions do you see people have about filing bankruptcy?
James Logan: I guess the number one thing people tell me when they come in is they don’t want to file bankruptcy because they don’t want to ruin their credit. What I’ll do is I’ll show them an actual credit report that we get for our clients. The overwhelming majority of the people come to see us have a credit score in the 500s. If you know much about credit scores, they run from 400 to 800. 700 and above is very good credit, 600 to 700 is not so good and anything below 600 is bad credit.
Filing Bankruptcy Can Increase the Credit Score by Eliminating the Charge Offs and Balances on the Credit Report
So, the vast majority of the people, when they come see us, they have a credit score in the 500s and their credit is already shot. And what I show them is by filing a bankruptcy, they’re actually going to increase their credit score. That just amazes people and they’re thinking, “Well, how can this possibly be?” The reason is that the bankruptcy eliminates all the charge-offs and balances on your credit reports, so all you have on your credit report is a bunch of zeros and a bankruptcy and that gives you a much better credit score in having all these charge-offs and no bankruptcy.
It is a Misconception that Bankruptcy Ruins Your Credit Score
When I show people that and they realize it and they’re, “Okay, it now makes sense”, and they want to file a bankruptcy to actually improve their credit. So, that’s probably the number one misconception is that bankruptcy ruins your credit. By the time you’re calling me, your credit’s already short and bankruptcy is only going to help your credit.
Credit Scores May Improve From 50 to 150 Points Within 6 to 12 Months of Bankruptcy Filing
Interviewer: How much have you seen people’s credit scores improving after bankruptcy and how long they have the bankruptcy?
James Logan: Anywhere from 50 to 150 points within the 6 to 12 months after filing. The hardest thing to do after filing a bankruptcy is to buy a house. You can buy a house with an FHA loan two years after a Chapter 7 bankruptcy. So, I tell people you know, “Hey instead of paying 3, 4, 500 dollars a month on these bills that you’re never going to pay off, file a bankruptcy, put $300 to $500 a month at a bank account, in two years, you’ll have $7,000 to $8,000 for down payment and you can go and buy a house”.
It is a Misconception that You Can’t Buy a Car After Filing Bankruptcy
If they already own a house, then it’s really no-brainer because if you already own a house, doesn’t matter what your credit is, just wipe out all your debts, make your mortgage payments and you have a roof over your head. The other big change I’ve seen recently is during the recession, it became very difficult to buy a car after filing bankruptcy. In last couple of years, that is no longer true. You’ll have car dealers sending you mail, you’ll have car dealers calling you after you file because they want to sell you a car now and they know you’ve wiped out your debts and you can’t file again for eight years, so they know you’re a great candidate for buying a car. People always worry, “Well, I won’t be able to buy a car”, and that is absolutely not true.