Dear Liz: It looks as if I will have to file for personal bankruptcy because of a business failure. (I guaranteed the debts personally, and there are two I know I can never repay.)
I could possibly keep the business open a few more months if I stopped paying a few of the other creditors, thus keeping my workers employed a little longer.
I know my FICO score will drop when I file, but will it drop more if I stop paying bills before I file, or is the FICO drop the same no matter what?
Answer: The end result will be about the same.
If you stop paying some bills, those skipped payments will lower your score substantially. Once you file for bankruptcy, your score will drop some more.
But the effect of bankruptcy on your scores is so profound that you’ll end up in about the same place as you’d be if you had filed without ever having missed a payment. Either way, your scores will be in the basement.
If you believe bankruptcy is inevitable, consult a bankruptcy attorney now. It’s easy to make mistakes that could endanger your bankruptcy filing.
You don’t want to wind up with shattered scores but still owing these impossible-to-pay debts.