Chapter 7. What I would've done differently.

[rachelarmont]

My husband and I filed for Chapter 7 in July 2013 after I lost my job in March (I was the primary breadwinner). We had a lot of debt. A lot. We had a house built 1.5 years prior to losing my job and, as some of you know, a new house always comes with unexpected expenses. Our credit usage prior to the house was very conservative. We had about an 8% usage of our available credit. My score was 783...before we bought the house. After? It had gone as low as 723 due to credit usage. A number of outliers were to blame, but I also realize that we overused our credit thinking my career would continue its rapid upward climb. After an acquisition we found out the hard way that no one is immune to restructuring, even when you're the one who built the department and assisted in the acquisition (I was their HR Director). 

Anyway, I received a severance package, which we used to move to a larger market where my husband would be able to make more money and I would find a similar job. Again, wrong. We kept paying our payments, above the minimums, and we leased a house while waiting for ours to sell. It took me from March to September to find a new job. We decided in July that we had to file Bankruptcy to avoid being evicted (we wouldn't be able to continue paying our rent and house payment and credit cards and student loans). We found a credit attorney (which I recommend to anyone filing for bankruptcy) and he recommended Chapter 7. We were still paying on all of our debt and didn't stop until the automatic stay was in place. Relief was immediate. We reaffirmed my auto loan, which had some equity and was the family car, and my husband let his car go (he regrets that now, as his new car payment is not much lower for the VW he bought to replace his Mustang GT).

Since the final judgement of our Chapter 7, I have come to realize a few things we could've done to reduce the negative effect on our FICO scores. They are listed below:

1. We had a number of credit cards with a zero balance that were still open. Since all credit accounts are included in bankruptcy filings they were also on the roster. Had we closed them prior to filing, they wouldn't show as "IIB" or included in bankruptcy. These reduced our FICO scores by 34 points, which would have had no effect had we closed them and would show "paid as agreed" and "account closed by consumer" instead. 

2. We would not have paid over minimum payments to our credit cards. This helped us in no way, as the credit cards don't make any notes of this, and inaccurately reflect accounts late by 30 days (we'll dispute this if we find out that this is a factor affecting our scores). 

3. We would have reaffirmed my husbands auto loan for the reasons cited above. 

4. We would not have continued to pay our mortgage, as the house was unable to sell for the amount we owed. We did not reaffirm the mortgage but we continued to pay the mortgage, hoping it would eventually sell. It was later auctioned once we stopped paying. 

5. We would've filed sooner while I was unemployed. The fact that I secured a job (for 35% of my previous compensation) before final judgement required a disclosure and another inquiry by the Trustee. 

6. Had we taken these steps, I would've been in a better position to hold out for a job offer that matched my skill set instead of settling for a job I knew I was overqualified for. Now I have a salary history that is skewing my ability to find a job that meets my compensation package requirements. 

That last point might seem unrelated to lessons learned, but it is having a measurable impact on our ability to secure lines of credit so we can rebuild our FICO scores. 

[DaveInAZ]

---

@rachelarmont wrote:
{snip}

Since the final judgement of our Chapter 7, I have come to realize a few things we could've done to reduce the negative effect on our FICO scores. They are listed below:

1. We had a number of credit cards with a zero balance that were still open. Since all credit accounts are included in bankruptcy filings they were also on the roster. Had we closed them prior to filing, they wouldn't show as "IIB" or included in bankruptcy. These reduced our FICO scores by 34 points, which would have had no effect had we closed them and would show "paid as agreed" and "account closed by consumer" instead. 

2. We would not have paid over minimum payments to our credit cards. This helped us in no way, as the credit cards don't make any notes of this, and inaccurately reflect accounts late by 30 days (we'll dispute this if we find out that this is a factor affecting our scores). 

3. We would have reaffirmed my husbands auto loan for the reasons cited above. 

4. We would not have continued to pay our mortgage, as the house was unable to sell for the amount we owed. We did not reaffirm the mortgage but we continued to pay the mortgage, hoping it would eventually sell. It was later auctioned once we stopped paying. 

5. We would've filed sooner while I was unemployed. The fact that I secured a job (for 35% of my previous compensation) before final judgement required a disclosure and another inquiry by the Trustee. 

6. Had we taken these steps, I would've been in a better position to hold out for a job offer that matched my skill set instead of settling for a job I knew I was overqualified for. Now I have a salary history that is skewing my ability to find a job that meets my compensation package requirements. 

That last point might seem unrelated to lessons learned, but it is having a measurable impact on our ability to secure lines of credit so we can rebuild our FICO scores. 

---

Some great advice/lessons learned there. One I would question is while your attorney included those credit accounts with $0 bal in your BK? You have to list/include all your debt, not your lines of credit. Some may survive your BK. In my 2010 BK I had 2 accounts w/$0 bal. and didn't include them in my filing. My attorney was aware of them as he pulled my full CR, and didn't object to my not listing them. One got closed - Lowe's, as it was GE/Synchony and I included 2 other GE/Synchrony accounts w/ balances, so they closed Lowe's when they received the other notices; it's now listed on my CR as 'Closed by credit grantor'. But Bill Me Later survived BK, still open, now PayPal Credit.

I suppose it's a better idea to close any $0 bal accounts so you get a 'Closed by consumer' instead of risking a 'Closed by credit grantor', but I'm pretty sure you don't need to list any credit line with no debt in your BK, and absolutely no reason to have accounts w/$0 bal now listed as IIB on your CR.

[Creditwiser]

Thanks for sharing your experience.  I too wish I had done more research prior to filing.  I trusted the Atty and should have known better. While she did a great job in preparing the paperwork, she certainly didnt prepare me for it.  I lost several Paid As Agreed accounts that are now IIB including a car payment that had 2 payments left. 

[0REDSOX7]

FWIW, I've been able to dispute several accounts that were not included in my petition and listed as IIB back to show it wasn't listed.

I had to upload a copy of my petition, but for those that were updated because they were "guilty by association", I have gotten then fixed.

[barbaralee]

I am surprised your attorney did not tell you to stop paying on those cards. If you were planning on discharging them in the BK any money paid is money thrown away. Stop paying my credit cards was the very first thing my attorney told me to do. I also did not include cards with a 0 balance... That is how my Victoria Secret card survived, lol. 

[0REDSOX7]

I stopped paying the bills and retained the attorney - used the money I would have spent on credit cards and paid him instead.