All bills current at time of BK filing - how would FICO be affected?

[LVunderwater]

I have a home that is underwater approx. $100k. It may become necessary to do a short sale or walk away. At present, my credit FICO is 815, and I'm current on all payments. My income situation will be changing dramatically in approximately 4-5 months. I had actually planned to retire and sell the house in early 2010, point being that this is not an instant decision; I've been weathering this for many months now, but I'm at the end of the line. I intend to enter into a short sale agreement with my mortgage company. I can only make payments for 3 more months. If a shortsale can not be completed (which I expect to be the case) I will have no other option than to file a bankruptcy to extinguish future liability for a deficiency.

It is my understanding that when most people file a bankruptcy, all of their credit accounts are 90 days or more past due. If all of my payments and bills are current at the time of a bankruptcy filing, can anyone tell me what effect the bankruptcy would have on FICO score? In other words, my only reason for needing to file the bankruptcy is to get out from this underwater house.

Would appreciate any responses to this question

[keepsmiling]

You will be affected less than those of us who have all those "lates" on our reports.
I think a bk will drop you down by about 100 points.
Others will be along to correct me or tell you more.
Welcome to the forum! Best of luck to you. Keep reading and posting.

[LVunderwater]

Thank you for the quick reply. I did a search on Google for bankruptcy forum and this site was at the top of the list so I joined. Looks to be a very active community!
The only other option that I know exists is a deed in lieu of foreclosure, but as I understand, banks rarely agree to them (why, I don't know) so my plan is to put the bank on notice than I can only stay current for 3 more months and then I will file a bankruptcy as a last resort.

[keepsmiling]

Yes, it's a FANTASTIC group of very supportive, smart, caring people.
The bad news is that talking to the bank at this point is useless. You will have to be late before they will start to listen and even then won't care. They aren't likely to help much with a short sale either; they aren't the brightest or most beloved of institutions :P

Kinda leaves you in between a rock and a hard place. Like many of us here.
You might want to worry a lot less about your credit score and a lot more about your financial future. Keep reading here and you may find yourself viewing things very differently. It's a paradigm shift that happens gradually.

[LadyInTheRed]

Welcome to BKforum, LVunderwater.

Unless you qualify for assistance under the Making Home Affordable program or your bank is one of those who were part of the National Mortgage Settlement, the bank is not likely to work with you until after you default. Threats of filing BK mean nothing to them. If you know for sure you are going to have to default and plan to short sale or walk away anyway, you might want to stop making payments now and save the money that it sounds like you will need in 4 to 5 months. Why throw good money after bad? You FICO score should be your last priority.

Are you sure your mortgage is a recourse loan?

[ace300s]

I have a home that is underwater approx. $100k. It may become necessary to do a short sale or walk away. At present, my credit FICO is 815, and I'm current on all payments. My income situation will be changing dramatically in approximately 4-5 months. I had actually planned to retire and sell the house in early 2010, point being that this is not an instant decision; I've been weathering this for many months now, but I'm at the end of the line. I intend to enter into a short sale agreement with my mortgage company. I can only make payments for 3 more months. If a shortsale can not be completed (which I expect to be the case) I will have no other option than to file a bankruptcy to extinguish future liability for a deficiency.

It is my understanding that when most people file a bankruptcy, all of their credit accounts are 90 days or more past due. If all of my payments and bills are current at the time of a bankruptcy filing, can anyone tell me what effect the bankruptcy would have on FICO score? In other words, my only reason for needing to file the bankruptcy is to get out from this underwater house.

Would appreciate any responses to this question

My BK7 was discharged just a little over three months ago. I like you all of my accounts current when I filed BK7 (15 active accounts on my credit record). All the accounts were just about maxed out. We had no judgements, collections, liens, etc.

After discharge my credit report shows all accounts closed per BK7 and zero balance. None of the accounts showed late while the BK7 was in progress.

I estimate that my credit score dropped between 100 and 125 points down to the low 600's after BK7 was discharged.

Good luck and hope this helps...

[keepmine]

Not sure why you're concerned about a credit score when you're so underwater on your home and bk is a realistic option. As others have pointed out, stop making those mortgage payments. They're just money down the proverbial rathole.
With a bk filing, FICO score are pretty meaningless because many lenders whoke auto or mortgage loans have a criteria that they won't lend to someone with a recent bk. I found this out in 07 when my wife's car died and we absouletly needed a auto loan. I was turned down by my bank and my CU where I had a perfect record. Neither were a creditor in my bk. I found out later that they didn't lend until 2 years had passed since the bk filing and I was within about 6 weeks of that anniversary.
We got financed through the Cap 1 Blank check program.

[frogger]

At present, my credit FICO is 815, and I'm current on all payments.

Not to be harsh here, but your credit score is 815, you're current on your payments, yet you're broke and worried about what your credit score is going to be?

First thing to do is face the fact that you may indeed be bankrupt.

If you are, then why are you going to continue to pay for the next 3 months until you run out of money? You're going to do that because you always have and haven't faced the fact that you're bankrupt.

Bankruptcy is not the day you file the paperwork, it is a condition of life.

Face your situation, change your lifestyle, and spend the next 3 months worth of payment getting prepped up for your future life. I would much rather have a pantry of food and a cabinet full of toilet paper than continue to make payments for a house that I'm going to be rid of anyway.

Think about it.

We're here to help.

[LVunderwater]

ace300s:
Do you mean that the credit card companies terminated your cards when they received notice of the bankruptcy? I have high credit limits and zero balances on all my cards. I would like to maintain that status even though income will dramatically change in three months (reason for bankruptcy). There is always the hope and possibility that income situation could become better in the not too distant future.
You stated that your cards were "maxed out." Presumably, the credit card companies closed those accounts as a result of the BK, am I correct? My situation varies from yours in that I am zero balance on all the cards...

LadyInTheRed:
According to my research, you're absolutely correct. I wanted to be on record as being reasonable with the mortgage company. Specifically, asking for a principal reduction to current market value, also resulting in a lower payment, short sale with full waiver of deficiency, deed in lieu of (mortgage company receives an immaculate home ready for resale) If they refuse or simply ignore all of the above, then I will file a bankruptcy 91 days after sending them this notice. However, at least I'll have a record of the communication demonstrating my attempt to avoid bankruptcy except as the last resort.

[frogger]

ace300s:
Do you mean that the credit card companies terminated your cards when they received notice of the bankruptcy? I have high credit limits and zero balances on all my cards. I would like to maintain that status even though income will dramatically change in three months (reason for bankruptcy). There is always the hope and possibility that income situation could become better in the not too distant future.
You stated that your cards were "maxed out." Presumably, the credit card companies closed those accounts as a result of the BK, am I correct? My situation varies from yours in that I am zero balance on all the cards...

Sorry my friend, but you just don't get it yet.

Everyone is going to shut you down. All of those credit cards are going to close, zero balance or not. While your income situation may get better, you best get accustomed to not having any credit to speak of for a couple of years.

Open your eyes and face the facts. The facts won't be changing for you......

[LadyInTheRed]

ace300s:
However, at least I'll have a record of the communication demonstrating my attempt to avoid bankruptcy except as the last resort.

How do you expect that to help you?

[justbroke]

Declaring bankruptcy is a lot like admitting you're addicted to alcohol. You must first admit that you have a problem, and then you need to deal with the consequences and fallout. Unfortunately, almost all creditors will close every single account, zero balance or not, for the mere fact that you filed bankruptcy. Many creditors do not even like bankruptcy and if it shows on your credit report, they won't even think about granting you credit... even with scores in the 700s.

That being said, you can declare bankruptcy and move ahead by learning how to become credit independent. With previous scores in the 800s, I would say that you were responsible, so I'm not saying anything from a responsibility standpoint. I'm speaking from a reality standpoint. I can tell you personally that anything you did to avoid bankruptcy, doesn't matter at all to the scoring models. They are truly objective and don't look at the individual. It's all about numbers.

[LVunderwater]

With regards to your comment that everything will be shut down, per my research, one must declare everything that is owed on the bankruptcy. If my cards have a zero balance, technically, there is no need to declare them on the bankruptcy. I am fully aware that during a periodic credit report, the bk will reveal itself to the credit card companies. If they do not close the account within 60 to 90 days after the bk, I believe there may be a good chance that the accounts will survive. Has anyone been in this situation?

[LadyInTheRed]

With regards to your comment that everything will be shut down, per my research, one must declare everything that is owed on the bankruptcy. If my cards have a zero balance, technically, there is no need to declare them on the bankruptcy. I am fully aware that during a periodic credit report, the bk will reveal itself to the credit card companies. If they do not close the account within 60 to 90 days after the bk, I believe there may be a good chance that the accounts will survive. Has anyone been in this situation?

Some report having credit cards survive BK, but it is rare. I had over 10 open credit card accounts and only 3 had balances when I filed. I did not list any of the accounts with zero balances on my petition. Everything was cancelled, except that my Costco American Express card still shows as open on my credit report and I still get notices about changes in the terms. I have over 2.5 years left in my Chap 13 and I am not counting on the card surviving, but I'm guessing that if they haven't canclled it now, they may not. I'm forbidden from incurring debt during my Chap 13, so I haven't tried to use it. I'm not even sure I have the card any more.

You shouldn't count on any cards surviving your BK. If you are bankrupt you are bankrupt. In your decision making process, losing your credt cards and your good credit rating should be the least of your worries.

[frogger]

You shouldn't count on any cards surviving your BK. If you are bankrupt you are bankrupt. In your decision making process, losing your credt cards and your good credit rating should be the least of your worries.

I agree that it should be the least of your worries, however it is a factor that must be taken into effect. Your credit score is going to be toast for a couple of years and the cards are going to get shut down.