One of the most common concerns people have when pursuing bankruptcy is the effect filings have on their future ability to be approved for credit. They already suffer from low FICO scores. Late payments and delinquencies have also led to aggressive collection actions that include wage garnishments, liens, lawsuits, home foreclosures and car repossessions.
Eventually, a Chapter 7 debt discharge or Chapter 13 reorganization can provide a much-needed boost to credit scores. However, all consumers may see an automatic increase come this summer.
On July1, the nation’s three credit reporting agencies will remove or exclude certain negative information from credit reports. Data that does not include customer names, addresses, Social Security numbers or dates of birth will be wiped clean from credit reports.
The Consumer Financial Protection Bureau (CFPB) is under pressure due to the largest number of complaints they receive from consumers involve inaccurate information on credit reports. Come July 1, people and companies submitting negative data will have the burden of proof.
Tax liens and civil debts can take away as much as 100 points off a credit score. A lower number presents challenges in securing credit that does not involve significant fees and high interest is approved. The change will not reduce the negative consequences these delinquencies still carry. It only ensures that the data is accurate.
Benefits for consumers will be mixed. In the short term, credit scores will go up by wiping clean mistakes on a report. Conversely, the long-term impact will still show tax liens as a strong indicator of future credit risks.
In spite of changes in credit reporting, the best way to secure a financial “do-over” is to retain a bankruptcy attorney.