Bankruptcy: Costs, Credit Scores, and Life After Discharge in Missouri

Bankruptcy is a court-supervised process where a debtor in files papers with the federal courthouse. This blog post answers three frequently asked questions about bankruptcy: (1) How much does a bankruptcy lawyer cost? (2) How bad will filing for bankruptcy hurt my credit score? (3) How quickly after bankruptcy will my credit score begin to improve? The answers are all specific to bankruptcies filed in Missouri only.

Bankruptcy is a tool used to halt your creditors in their tracks; as soon as one files the appropriate papers with the federal court, creditors must stop all collection attempts. This gives debtors something extremely valuable: breathing room. There are two federal court systems in Missouri: the Western District of Missouri and the Eastern District of Missouri. You file bankruptcy in one of those two districts depending on where you live. Additionally, there are two types of bankruptcy that debtors can file. Chapter 7 bankruptcy is the fastest option (approximately 3-6 months from beginning to end), whereas Chapter 13 bankruptcy lasts between 3-5 years before the court gives you a fresh start. Most debtors hire an attorney to consult and assist them throughout the bankruptcy process.

Frequent Question #1: “How much does a bankruptcy lawyer cost in Missouri?”

The Answer: it depends. Each bankruptcy lawyer will agree to a unique price with each client, and several factors go into this final price. I spoke with one lawyer who uses a flat-fee method. He will file a Chapter 7 bankruptcy for his clients on the western side of Missouri for $2,000. The same lawyer charges $1,300 for his clients on the eastern side of Missouri. If a client wants to pursue Chapter 13 bankruptcy, this lawyer charges a flat fee of $3,600 for clients in the western half of Missouri and $2,800 for clients in the eastern half. He requires that his clients pay $300 up front to cover certain expenses he will incur on the client’s behalf (doing a credit check, paying for the pre-filing credit counseling, etc.).  The full amount of the bill must be paid prior to the end of bankruptcy.

Another lawyer, located in Jefferson City, Missouri, will file a Chapter 7 bankruptcy for as low as $675. However, this is not a flat fee; the price may go up depending on the complexity of the case and how many debts a client will discharge.

Frequent Question #2: “How bad will filing for bankruptcy hurt my credit score in Missouri?”

The Answer: it depends. One lawyer I spoke with told me that his clients usually take a 250 point hit to their credit score. Other research shows debtors who file bankruptcy experience a decline in their credit score between 180-260 points. Bankruptcy affects every debtor differently, but it will most likely result in a debtor having a “poor” credit score (a poor credit score is usually anything below 600 points). The hit to your credit score will appear once you file for bankruptcy. Filing for Chapter 7 bankruptcy will stay on someone’s credit score for 10 years, and fling or Chapter 13 bankruptcy stays on a credit score for 7 years. Discharged debts that disappear after bankruptcy will still remain on a credit report for 7 years. This is because while a bankruptcy court can wipe away your debts, it will still show up as a debt that was not paid in full.

Frequent Question #3: “How quickly after bankruptcy will my credit score begin to improve in Missouri?”

The Answer: it depends, but it can begin healing almost immediately. Filing for bankruptcy can be viewed as dropping a bomb on your credit score; it will be damaged for a while. But, like a forest fire, sometimes scorched earth can reveal new life underneath. One Missouri bankruptcy lawyer told me that he had a client who filed for Chapter 7 bankruptcy in the summer of 2017, she received her discharge (non-secured debts were wiped away forever) at the end of 2017, and a car dealership gave her a new car loan in January of 2018. While this result is specific to that particular debtor, the take away is that your credit will rebuild if you make it a priority.

Additionally, in the world of home loans (mortgages), most banks will begin to loan to someone 24 months after their bankruptcy discharge is issued. While most lenders will not extend credit (a loan) in the immediate months after bankruptcy, a person who works hard to improve their credit (by paying bills on time, for example) will eventually be back on their feet.

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