Today, the AP is reporting a general downturn in the all important FICO score, which score is used primarily to determine loan eligibility.

Many, if not all of our clients will, at some point, consider the impact an impending bankruptcy will have upon this score. Oddly enough, credit scores after bankruptcy, notwithstanding this report, will generally increase. How? We call it the Bankruptcy Bump.

You see, bankers and lenders know a few important things about those who file for bankruptcy.

• For starters, after your bankruptcy is completed or discharged, you owe little or no remaining debt. This is a very good thing for your credit score.
• For another thing, you can’t file for bankruptcy again (Ch. 7 discharge not available) for 8 years. Bankers and lenders know this, and take it into account.
• Next, the typical consumer who files bankruptcy is ‘minimum payment acclimated’.  What this means is that the typical consumer tries very hard to be a good debtor, and maintain those all important minimum payments. Consider, how does a bank make money? Minimum payments on a revolving credit card loan, that is how! Bankers love consumers who are ‘minimum payment acclimated’, it’s guaranteed income. A ‘deadbeat’ in the banking industry is a consumer who pays off their credit card debt each month!

• Finally, we are all sold on the premise that in order to be a ‘good American’, we need to Consume. We must Buy Something. Use your credit card, pay it out over time! This is the greatest and most formidable trap foisted by our ‘leaders’ and those who pay for our ‘representation’. Even today, during the greatest financial crisis seen in this country since the great depression, we are constantly bombarded with the fact that the American consumer will somehow buy us out of this economic morass. But, I digress. The final point of this discussion is that your credit score will improve because the bankers and lenders KNOW you will consume, and they want a piece of the action. A large piece.

Now, before anyone jumps to conclusions, I am certainly not suggesting that one should elect to file a bankruptcy for the sole reason of increasing a credit score. Far from it. The traditional methods of increasing ones credit score are still valid. Incurring reasonable debt, maintaining payments on time on that debt, and paying down the debt to a zero balance, are still the best techniques to increase ones credit score.

I am suggesting, however, that those who are in financial pain, who are considering or are forced into filing a bankruptcy, those folks should take advantage of the bankruptcy laws as it applies to their circumstances, and simultaneously enjoy the benefits of the ‘Bankruptcy Bump’ in their credit scores.

John C. Colwell, Attorney at Law

Debt Relief Legal Clinic

San Diego, CA

877-663-3287

Member, Board of Directors, NACBA

National Association of Consumer Bankruptcy Attorneys (NACBA)