Filing for a Chapter 7 bankruptcy in Kentucky is going to mean that your credit score will take a hit.
There is no way around it. But fortunately, the overall outcome is almost always better than if the filer had taken no action to address the debt. In fact, many of our clients find their biggest regret is that they did not file sooner.
Still, some hit some bumps in the road to their financial recovery, which included a delay in accurate data from credit bureaus regarding discharged debt that is no longer owed.
But now, that's changing, following the resolution of a class action lawsuit against the three major credit bureaus - Equifax, Transunion and Experian. The case started as a number of different lawsuits that were filed even before the economic downturn, back in 2005 and 2006. They were later consolidated into one action.
The plaintiffs in the case, Radcliff v. Experian, alleged that the credit bureaus had issued credit reports that showed they were delinquent on payments for debts that had already been discharged through bankruptcy. The plaintiffs further alleged that when they informed the credit bureaus of the errors, the bureaus did little to investigate or resolve the problem.
Credit is important no matter what your financial situation, but it's something that is painstakingly managed by those who are emerging from bankruptcy. So for them, errors like this are especially tough.
The two sides reached a $45 million settlement deal that was rubber-stamped by the trial court, but later thrown out on a technicality by the U.S. Court of Appeals for the Ninth Circuit. (Basically the court found there was an improper conflict, as some plaintiffs stood to collect more than others.)
However, the credit bureaus had clearly heard the message, as a 2008 lawsuit ended in a settlement that required the bureaus to enact systems to ensure that debt racked up prior to a bankruptcy is accurately included in the bankruptcy filing - assuming the debts were eligible. (Some debts, such as student loans, child support payments and a few others usually can't be discharged.)
At the time of the case, some wondered whether the ruling mattered all that much, considering that people who file for bankruptcy are already going to have lower credit scores. What's a few more points?
Yes, the first year or two might be rough. However, if you keep up on your payments and maintain a handle on your debts, chances are good that your score will improve greatly. Ensuring that the credit bureaus are accurately reporting your old debts as discharged is important to ensuring that score is moving in the right direction. That's ultimately going to have a positive effect on not only your ability to do things like rent or buy a home or purchase a vehicle, but also the interest rate you'll have to pay on those big-ticket items, as well as on your credit cards.
This increased vigilance on the part of the credit bureaus, however, should not cause you to relax your own. Make it a point to periodically check your credit score for potential errors, and be sure to report any problems you find.