We all have secrets.  Some are dirty little secrets involving deceit and chicanery.  Others are family secrets, like that branch of the family tree that started as an unwanted teenage pregnancy.   Today I want to talk about a secret in the world of bankruptcy.  Bankruptcy is a scary word.  Most people considering bankruptcy think they know what will happen to their credit score if they file bankruptcy.  Many people are given stern warnings by friends or family that bankruptcy is a horrible decision that will haunt them for years.  Now for the secret: the people most afraid of bankruptcy are those that have not gone through it!  As the old adage goes, ignorance and prejudice go hand in hand.  This is certainly true when it comes to bankruptcy.  Maybe you’re considering bankruptcy and wondering what’s really going to happen to your credit.  Maybe you’re just thinking about it but are not ready to speak to a lawyer.  Try speaking to friends or family members that have filed bankruptcy.  I am confident those who have actually filed bankruptcy will say things like, “Best decision I ever made,” or “Only wish I had filed sooner.”  As the Beetles lyric goes, “I get by with a little help from my friends,” and you can too.  Still concerned, keep reading.  Much has been written here and other places about credit after bankruptcy.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy.  If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation.  We have offices in Walnut Creek, Antioch, and Hercules.

Adversity is a part of life.  How we respond to adversity is a choice.  When asked about financial adversity, Robert Kiyosaki, the bestselling author of Rich Dad Poor Dad, said, “Sometimes you win and sometimes you learn.”  Sage advice.  In 2015 the Federal Reserve Bank of New York released a report entitled “Insolvency After the 2005 Bankruptcy Reform Act,” which sheds light on the choices a person should make when dealing with financial adversity.  The report studied data from 1999 to 2011 and compared the credit scores for insolvent borrowers that file bankruptcy to the scores of those that do not.  The Federal Reserve Bank concluded:

The individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy, whereas the recovery in credit score is much lower for individuals who do not go bankrupt.

The findings refer only to those borrowers considered insolvent.  The definition of insolvent used by the study is individuals with accounts that are 120 or more days late or charged off.  [Note: the term “charge off” or “charged off” is often misunderstood to mean the lender has forgiven the debt but usually the debt has been sold to a collection agency.]  At this point, you might be asking, “Is that true?”  The conclusion of the Federal Reserve Bank of New York is true and is supported by my experience over the years.  To understand why, you need to realize that good credit is a history of paying bills on time.  If you are in over your head in bills, and you are not able to pay even the minimum payments, then your credit will go bad and remain bad until you are able to resolve the debts.  Bankruptcy clears debts and allows you to begin building good credit quickly.  For those that do not file bankruptcy their credit can remain bad for many years.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy.  If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation.  We have offices in Walnut Creek, Antioch, and Hercules.