Impact of Bankruptcy Filing on FICO Scores

Adverse Event Impact on FICO Scores

I was recently asked by a prominent Colorado Springs bankruptcy attorney to comment on the impact of filing bankruptcy and credit scores. The short answer is the greater the score at the time of filing, the greater the decrease. This is somewhat akin to the idiom the bigger they are the harder they fall. On the other hand, when it is inevitable that bankruptcy in necessary, the sooner one files, the sooner one will recover their credit scores.

On the lower end of credit scores, I have seen scores improve by 50 and more points on the filing of bankruptcy. Do know I am not extolling the virtues of having to file bankruptcy and I have never met a person that wanted to file bankruptcy.

A teacher once told me that there are two things in life: Those things you get to do and things you have to do. Bankruptcy is a ‘have to’ event. In the eighteen years I have helped folks rebuild their credit and their credit scores after bankruptcy, I have never met one that wanted to file bankruptcy.

In actuality, the overall impact will vary greatly from one individual to another as individual credit profiles differ greatly. If one wishes to get a reasonably accurate projection of what will happen to the score post-filing, one can manipulate this score simulator to “create” credit events. This simulator was built by FICO. One can also utilize this tool to get an idea of how to begin optimizing credit scores post-filing.

Adverse events and reductions in your FICO Score


Effect on a 680 score

Effect on a 780 score

Maxed-out card

-10 to -30

-25 to -45

30-day late payment

-60 to -80

-90 to -110

Debt Settlement

-45 to -65

-105 to -125


-85 to -105

-140 to -160


-130 to -150

-220 to -240

Source: FICO
To gain a greater understanding of how the FICO algorithms operate to score your credit, please review the ingredients that comprise your FICO score. I discuss this concept in plain English in this blog.

Those who get caught in the HAMP trap of month after month of having late or no mortgage payments while attempting to obtain a loan modification will have a lower credit score than those who file bankruptcy early in the process.

The same negative impact on scores will also show under the typical HAFA short sale or deed in lieu of foreclosure program. The exception to this is twofold: One is that the payments remain current during the HAFA short sale negotiation process and the short seller actually moves to another real estate market.

To sum up this blog, there is a new credit life for you after bankruptcy. I have been there, and come back from the land of no scores to now enjoy scores of the high 700 and early 800 scores.

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Image credit: FICO

Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | June 30, 2011 
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

4 comments on “Impact of Bankruptcy Filing on FICO Scores

  1. Rocky Germano says:

    Thanks Jim. I have learned a lot from your superior knowledge of finance. An area I am sorely lacking. I know my wife will not bury me with a book extolling the virtues of talking to peers the subject of high finance. Perhaps an old copy of the short story “The Man Who Was Followed by His Heart” – I played the leading role in a high school play – I got to lay in a coffin (and try not to laugh) when my fellow actors said strange things on my dead and lifeless body. Ah to be young again…


    • James Spray says:

      Rocky, the beauty of that upon which I comment is that it’s truly a simple study of credit profiling. By training I am a Sociologist, ergo, I study the obvious. The FICO model which baffles most with mystical obstrufication is truly an elementary study of the obvious. It’s not difficult to learn how to manupulate the obvious. In all events, I hope you find my observations helpful for you and yours.


  2. […] July Personal Bankruptcy Filings Fall 18 PercentPersonal Bankruptcy Filings Climb in 2010 Substantial Incomes and Personal bankruptcy Filings Bankruptcy filings here seem to be leveling off Bankruptcy Filings and Collateralized Debt ObligationsTrends in Bankruptcy Filing Chapter 7 Bankruptcy Myths Wage Garnishment and Bankruptcy Filing Trying to Avoid a Bankruptcy Filing Makes it too Late Impact of Bankruptcy Filing on FICO Scores […]


    • James Spray says:

      Sadly, I think we’ll see the downward trend of filings reverse soon as the foreclosures accelerate following the temporary lull caused by the RoboSigning scandal. However it is true that the longer one delays the inevitable, the harder the hit to the FICOS.


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