which is worse?

July 21, 2007 10:08 AM

Asking for a friend: what's worse on a credit check- unpaid debt or recent bankruptcy?

A friend of mine is in the process of filing bankruptcy due to some oppressive credit card debt from high school, a long stretch of unemployment, and some personal issues. He's currently employed, but wants to look elsewhere.

He's wondering if it would be better to apply now, and deal with a credit check with bad debt, or wait until the bankruptcy is done and have that on his record.

So, anyone who does hiring and looks at such things, which would put you off more?

For the record, he's gainfully employed at a start-up, has been promoted twice within the year, but has basically reached as far as he can at the current company short of upper management.

posted by Kellydamnit to work & money (12 comments total)

I'm no expert but from what I've read and heard a bankruptcy would be very much worse. A bankruptcy stays on your credit report for up to 10 years depending on whether it's a Chapter 11 or Chapter 13.
posted by blucevalo at 10:14 AM on July 21, 2007

A higher salary could affect his eligibility for Chapter 7 if he gets a new job (and presumed raise) before filing; tell him to ask his lawyer about this and related issues.
posted by rkent at 10:31 AM on July 21, 2007

He should probably first ask the lawyer through whom he is filing. If the lawyer doesn't know (and I don't know if that's the kind of thing bankruptcy lawyers know, although it would seem like it is) then he should probably walk into his bank and ask if they have any sort of credit counseling service available. I've done that through my credit union, and they were very helpful; I called in, and they answered a lot of questions that I had when I was getting married.
posted by koeselitz at 10:51 AM on July 21, 2007

rkent: never even thought of that! I don't know if it would be a concern, though, since we're talking about going from, say, eleven dollars an hour to twelve. A raise, but not a significant amount of money.

Odds are he won't get a new job before the chapter 7 goes through, since it's going to be in the next two weeks. That's why he's wondering about this- should he apply to places now before the chapter 7 is on his record and there's bad debt, or wait it out.
posted by Kellydamnit at 11:01 AM on July 21, 2007

Bankruptcy is far, far worse than unpaid debt. Also, as already alluded to, it is far more difficult to completely discharge your debts in bankruptcy these days. I wouldn't do it unless I didn't have enough left over after making the minimum payments to even buy a diet of rice and beans.
posted by caddis at 11:07 AM on July 21, 2007

Yeah, I was having caddis' misgivings about the whole bankruptcy thing myself; you don't say what the "personal issues" are, although I'm imagining it's something pretty messy like divorce or something, but I wouldn't go for bankruptcy on the basis of mere credit card debt from high school unless said debt was far in excess of $100,000. Better to live on the couches of friends, move back in with parents / aunts / uncles / family members of any kind, move to someplace cheaper than NY, sell a fair amount of belongings, and do a heck of a lot of stuff than declare chapter 7, although I'm no lawyer and presume that somebody has apparently advised him to do this.
posted by koeselitz at 11:26 AM on July 21, 2007

Avoid bankruptcy at all costs. Has your friend completely exhausted all alternative avenues? He should go to a credit counselor, and figure out how to start paying down that CC debt. A large debt that you are regularly contributing toward paying down is far better than either scenario.
posted by mkultra at 11:41 AM on July 21, 2007

I would recommend bankruptcy right before suicide. Find another solution. Hell, I am not even sure, with the new bankruptcy laws, of what kind of protection he would even have from the creditors. He might have to end up paying some of the debt anyway.
posted by bkeene12 at 11:52 AM on July 21, 2007

Credit Reports and Job Hunting

As stated before, bankruptcy would sit on a report longer than simple late payments. But if the job has a valid requirement for a credit check, either could possibly count against you.

That's why he's wondering about this- should he apply to places now before the chapter 7 is on his record and there's bad debt, or wait it out.

My hunch is that in this case, it won't matter either way. The new employer may not care about credit history, but if they do, there would likely be bad credit reported regardless.
posted by gimonca at 11:56 AM on July 21, 2007

So, anyone who does hiring and looks at such things, which would put you off more?

No doubt about it, bankruptcy is far far worse -- especially if he's currently paying down his debt. Neither one would completely preclude an applicant (in my eyes, anyway)

He's gainfully employed at a start-up, [...] but has basically reached as far as he can at the current company short of upper management.

The above statement is incompatible with a $23,000 salary ($11/hour). Many people, at many startups, make much more than that without being in management at all.

What role does he play in his current startup?
posted by toxic at 12:23 PM on July 21, 2007

I think a lot of bad advice is being spread here regarding bankruptcy. It is a bad thing but not horrible. Millions of bankruptcies occur annually and it is possible to re-establish good credit a couple of years after discharge. A bankruptcy will erase debt forever.

An unpaid debt that lapses into a judgement can be arguably even more harmful... it can dog you literally for decades and be renewed perpetually. If you can pay it off in a reasonable amount of time, definitely pay it, but if you will sink deeper into debt, the bankruptcy option is available for a reason. See a good attorney about this.
posted by hodyoaten at 12:25 PM on July 21, 2007 [1 favorite]

NO credit can be just as bad. I've never had a credit card, taken out a loan or mortgage, rented-to-own a TV, bought a car, nothing like that, so every time I look for an apartment I wind up forking over $25 or so for a mandatory credit check only to again be turned down because -- get this -- they accuse me of lying about my name, my Social Security number or my other data because everybody who's REAL owes oodles.
posted by davy at 2:23 PM on July 21, 2007