A bankruptcy clears out your credit score to perfection.
Video Transcribed: Edward Kelley from 1-888-Debtline, back with answers to your bankruptcy questions. And we’re the middle of this series top five bankruptcy questions that you asked me. Number three, and I’ve dealt with this before, but it comes up again and again, what will this bankruptcy do to my credit? Well, the quick answer is generally it will improve it. So the first thing you need to understand is your credit score is based primarily on a couple of factors.
First, what’s my payment history? Of course, going into a bankruptcy, that’s probably not good. Although that’s not always the case. Some people come into the bankruptcy before they get behind knowing that the bottom’s about to drop out, which is smart. But nonetheless, most people that come in, already late or months behind on certain payments and that’s been reported to the credit bureau over and over. Every time that happens, your credit score tanks.
However, the other half of your credit score, a lot of people I think maybe don’t understand this, is based on your debt-to-income ratio. The credit reports know your income, or at least what’s been reported or is public record. They seem to get this information. And then they also generally have a pretty good picture of your expenses every month. Not just your debt but utilities and how much money you have left over.
And your credit score is based as much on this as any other factor. So that’s the problem with, “Hey I am just going to slug this out.” Even if your payment history is maybe only marginally spotty, the credit bureaus know that you don’t have any money leftover. You basically don’t have any funds to pay back any debt. So your credit score goes down, down, down.
What a bankruptcy does is clear that out to perfection. Other than the car note or or a home mortgage that you very well may choose to keep, everything else is gone and your debt to income skyrockets. And 
Now, I mean, I won’t pretend that some of my clients don’t go back into the cycle. For some people it’s more of a psychological issue than it is calamity. But I do find that the minority of people.
So what a lot of people are surprised by is the fact that as soon as they get a discharge in the bankruptcy, which generally happens in 90 days after filing, somewhere in there, depending if there’s any problems, they will be flooded with credit card offers.
Now granted, these are not the best credit cards. It’s not American Express Platinum. But generally there’ll be one or two that aren’t too terrible. Usually Capital One will send one out without a too horrible interest rate and without all the annual fees, monthly fees.
And I usually advise my clients if they want to rebuild their credit quickly, get one credit card and use that for everything and pay it off every month. That’s a quick way to get a report every month, paying on time, using credit. And that coupled with the debt to income ratio will put you in a good spot very quickly. The myth is that if I don’t file a bankruptcy and my credit’s going to be so much better. So that’s a number three question I get from you and I’ll see you again with question number two very soon. Thanks. Edward Kelley from 1-888-Debtline.