It is commonly thought that filing a bankruptcy will ruin your credit score. Although generally bankruptcy will have the immediate short term effect of lowering your credit score, the reality is in the long run it generally helps your credit score.

FICO (your credit score) is nothing more than a mathematical formula used by creditors to judge the risk of loaning you money. The lower your FICO score, the higher the risk, and the higher the interest rate. The greatest effect on your FICO score is the number of late payments on your accounts. This component comprises approximately 35% of the formula. More late payments equals a lower score. The other major component of your FICO score is “credit utilization” or the amount of revolving debt (such as credit card or installment agreements) you use. This component comprises about 30% of the formula.

If you have months of missed credit card payments, house payments, car payments, or even a judgment, your credit score is probably not very high anyway. Bankruptcy won’t hurt it that much, if at all. Better yet, a bankruptcy will give you a fresh start, a way to start over without all the relentless credit card debt draining away your finances each month. Finally, generally you can rebuild your credit in far less time than it would take you to pay off all those credit cards.

Once you have gotten to the point of consulting a bankruptcy attorney, the likelihood is something has happened to get you in over your head. Your credit score is generally used for one of two purposes: purchasing a home or purchasing a car. If you already own a home and/or a car, and are saddled with other debts, bankruptcy may be the best alternative to solving your debt problems.

Finally, even with the negative impact of a bankruptcy on your credit report, you can still find someone willing to finance you for that new house, car or T.V. Sure the creditor will charge you a higher interest rate and may monitor your account closely, but you will be able to get financed if you look long enough.

As an example:

John Smith wants to purchase a new Nissan Titan that costs $30,000. He filed a chapter 7 bankruptcy 1 year ago and discharged $85,000 in debt. The bankruptcy is still recent on his credit report so he doesn’t qualify for the “good credit” interest rate of 3%. However, he does qualify for a 7% interest rate on a loan for 5 years. He will pay $5,642.16 in interest at 7% as compared to $2,343.64 at 3%. Having “good credit” only saves him about $3,300 over the five year period or about $94.00 a month. Compare that additional $94.00 to the savings from what he was paying his credit cards as minimum payments before filing bankruptcy and the benefit is clear. Additionally, he will never need to repay any of the $85,000 because it has been discharged in a bankruptcy.

Bankruptcy is a serious financial decision but for most the benefits far outweigh the costs. Contact us today for a free consultation and speak with one of our experienced bankruptcy attorneys.

Written by Patrick J. Gilpin, Jr., Attorney

House foreclosure – problems paying you house mortgage?  A large number of people are turning to “loan modification firms” to help them get a loan modification.

Not only are they using these newly founded firms and believing the “hype” but they are paying large sums of money to “loan modification” companies. Far too much money for what are largely unperformed or under performed services.

We assist clients in getting loan modifications. Our fees may run approximately $500 to help a client get a loan modification. Most of our clients do the work to get their loan modification. And it works.

Companies that charge $1500, $2500, $4000 or more to help you get a loan modification are, in reality, “stealing” your money.  They are running a “scam.”

The bankruptcy courts in Houston are making some of the bad companies give back money to clients. I sat in on a court hearing recently where the bankruptcy court was reviewing the services of a “loan modification” company.  The particular “loan modification” company had not gotten a single loan modification completed-even thought the company had been paid large sums of money by many people.

Contrast that to our clients. We have many clients that have requested loan modifications and actually get the loan modifications approved and completed. Many clients-not just a few.

So the process works. It does not cost a lot of money. There are no “secrets” that loan modification companies have that mean they can be successful. In fact, I would bet that our clients get more loan modifications done than almost every “loan modification” company.

We do have an advantage over “loan modification” companies. In fact, we have several advantages.  First, we are not at the end of a web address on the internet. We have been in business in Houston as a law firm for over 10 years assisting clients with debt relief and bankruptcy issues. We will be here next year. We have an excellent rating with the BBB.

Second, we can submit loan modification documents over the internet. As a result, the mortgage company cannot use the often repeated excuse that they did not get your documents.

Third, we have successfully completed many loan modifications with our clients.

Fourth, our fees are significantly less.

My most important comment to potential clients is to be careful. People are getting “scammed” far too much. If it sounds too good to be true, then it is.