Credit Scores and Bankruptcy

When you file bankruptcy of any kind, your credit score (sometimes called a FICO score) will immediately take a nosedive. Even if it was low to begin with, it will go lower. A credit score is supposed to be a prediction of whether or not you will pay back debt in the future. However, since no one, not even the big three credit reporting agencies, can predict the future, what a credit score really measures is the likelihood you will pay back existing debts. Since, once you file bankruptcy, you will most likely NEVER repay any existing debt, your credit score drops to reflect that.

If you think about it, someone filing bankruptcy is probably a better credit risk than another person with the same income and the same amount of debt, but who didn't file. That's because the person who filed has (1) gotten rid of a bunch of debt; and (2) now cannot file bankruptcy for several years (eight years if you filed Chapter 7 and receive a discharge). Car loan companies know this. That's why they have people who do nothing but see who has filed bankruptcy and then send them offers of credit if they buy a new car. The lenders are so sophisticated that they tailor their solicitations based on your ZIP code. If you live in an affluent ZIP code, you might get offers for a Lexus or a Corvette. If you live in a lower-income ZIP code, the offers might be for lower-end Fords or Hyundais. But one thing you can count on, besides the hit your credit score will take, is that you will get solicited to buy a new car. Three words about that: DON'T DO IT. More on that topic later.