People can find themselves at a point where there is no chance they will be able to pay off the debts they have accumulated. For example, consider someone who has depleted all their savings and maxed out all of their credit cards due to medical problems and losing their job. Even with unemployment or a temp job, they might find that they can no longer make even the minimum monthly payments on their cards or keep up with their rent and car loan. That’s when a helpful option is talking to a bankruptcy attorney. Chapter 7 could turn out to be the logical next move. For individuals who have declared bankruptcy, the recovery process is long and difficult. The first step comes when you and your court-appointed bankruptcy trustee meet with your creditors to inform them of the bankruptcy, at which time any nonexempt assets that you have must be liquidated. You will be allowed to keep your furniture, car, and personal belongings up to a certain value, but any nonexempt liquid assets, such as cash or certificates of deposit (CDs), must be turned over to your trustee. However, liquidating your assets is only the first of many issues that must be dealt with as the consequences of your bankruptcy unfold. Getting a loan of any kind will be extremely difficult for the next couple of years. It may be possible to regain a better credit score and qualify for some types of loans after only a year, but the lenders that will take you on will probably be from finance companies that charge exorbitant rates of interest. In some cases it may not be possible to get credit at all for major purchases, such as a car or home. A Chapter 7 bankruptcy will remain on your credit report for 10 years.
If you file a Chapter 13 bankruptcy instead, the bankruptcy should disappear from your credit report after only seven years. With Chapter 7 your trustee uses the liquidated assets to pay off as much of your debt as possible, after which the rest is discharged. Chapter 13 requires that you pay back all of your debt within three to five years according to a set payment plan that must be approved by the court. If you are in a position to put forward a credible plan, Chapter 13 is often preferable, because it allows you to save your home from foreclosure.
How to Recover After Filing for Bankruptcy
Here are a few steps that you can take to help regain control of your situation.
Maintain a job and a home
It is vitally important that you get and keep a job as soon as possible, if you don’t have one already. Finding a good place to live ranks a close second, if this is an issue. Stable residential and employment histories are necessary because they show creditors that you are reliable. A growing number of landlords are checking credit references as a means of screening out possible unreliable tenants. If you are not able to rent an apartment, you may have to room with a friend or relative until your credit improves. Employers may also request credit scores and histories of their potential applicants as a measure of personal responsibility. A spell of bad luck can fuel a vicious cycle that may prevent you from getting a job that pays enough for you to pay off your debts. Do what you can to push forward anyway and find a job that can be the foundation of putting the bankruptcy behind you.
Pay your bills
It is imperative that you stay current on all of your monthly bills and other payments so that your post-bankruptcy credit record stays clean. There is absolutely no room for even the tiniest amount of backsliding in this regard. This means that you must be extremely watchful of every expenditure so that your expenses don’t build beyond what you can afford to cover.
Keep a bank balance
Opening and maintaining a checking and/or savings account is also necessary. Having a history of charged-off bank accounts could hinder your ability to open a new checking account. The good news is that many banks offer second-chance programs for people in this situation. Keeping a positive balance in all accounts at all times will show employers and creditors that you now have a reliable cash flow.
Start to rebuild your credit
During bankruptcy it’s important to start to build up what got torn down. To rebuild your credit you may need to obtain a credit card. Using it wisely will demonstrate to lenders that you can manage your money and are determined to slowly rebuild your flawed credit history. If you find yourself racking up debt again, you should stop using your card immediately and start a repayment plan. If necessary, use a debit card or prepaid credit card until you can pay off your regular card. Keep in mind that the interest rate on any card for which you are eligible will likely be higher than on the average credit card. When the time comes to buy something larger with debt, such as a car or house, you may need to have another party, such as your parents, cosign the loan. Without this, you may not be able to obtain financing at all. With it, you may be able to get something resembling decent terms on your loan, depending on the credit score of the cosigner. If credit is not available, you may simply have to wait until you can pay for a car with cash or consider a personal loan from your relatives and/or friends. Also an issue if you’re buying a car: After declaring bankruptcy, you may find that insurance companies are reluctant or unwilling to insure you. If your past credit history puts you in what insurers consider a high risk pool, there are companies that will provide car insurance for you charging more, but you still need it to drive. Bankruptcy is designed to help people who are struggling to pay their bills. While there are negative consequences to filing for it, there can also be many positive consequences as well. Ideally, you will know why you want to file and what steps that you will take after filing to get through it stronger than before.
Know Why You Filed
While filing for bankruptcy can eliminate some or all of your debts, it won’t help you make better financial decisions in the future. Therefore, you have to determine why you filed and how to avoid doing so again. For instance, if you spent too much money on clothes or lottery tickets, it will be worthwhile to reduce or eliminate how much is spent on those luxuries.
Know Where to Find Help
If you are struggling to change your financial habits, it can be a good idea to reach out to a financial adviser. This person can help you create a budget, learn more about concepts such as compound interest and otherwise make it possible to increase your fiscal competence. You can also talk with an attorney to learn more about how it will impact your finances over the short and long-term.
Get a Secured Credit Card
After your debts have been discharged, be sure to get a secured credit card to start rebuilding your credit. This is true whether you file for Chapter 7 bankruptcy or Chapter 13. Ideally, you will use it to pay for gas or other daily expenses with the expectation that the balance is paid in full at the end of the month. This will help to improve your credit score and make it easier to get traditional credit cards in a timely manner.
Keep an Eye on Your Credit Reports
It is possible for credit agencies to report balances on accounts that have been wiped out in bankruptcy. If your report does have inaccurate information on it, that could have a significant impact on your credit score. Challenging erroneous details could result in your score going up dozens or hundreds of points. You have the right to obtain one free copy of your credit report per year. Filing for bankruptcy should be a last resort for those in financial dire straits. However, if you need to take that step, it is important to know that there is a way to recover from bankruptcy. In fact, by eliminating your debt, it may be easier to start saving money and strengthening your financial position.
Types Of Bankruptcy
While businesses usually file Chapter 11, for individuals, the most common types of bankruptcy are Chapter 7 and Chapter 13. Each has its advantages, and your personal situation will determine which may be appropriate for you. In Chapter 7, the court sells your property and assets to pay back your debt. Any debt left over will be dismissed. Some property is excluded, but you could lose your car and home. This bankruptcy will stay on your credit report for 10 years, and you won’t be able to file again for eight years. In Chapter 13, you will work with the court to repay a part or all of your debts. In this bankruptcy, you can retain your possessions and assets and not have them sold or repossessed. Repayment plans can last from three to five years and the bankruptcy will be on your credit history for only seven years. And if you have to, you can refile a Chapter 13 bankruptcy in as few as two years.
One of the biggest consequences of declaring bankruptcy is the impact to your credit. Not only will the filing impact your credit, but any loans or credit card debt settled by the bankruptcy will also be negative items on your credit report. After bankruptcy, you may not be eligible for new loans and credit for years after you file, and you can expect banks, lenders and credit card companies to charge you higher interest rates and require security deposits and larger down payments for the products they offer. While you can’t offset the impact of bankruptcy to your credit, there are things you can do to improve it over time. Try to avoid adding any new negative items to your credit report by sticking to a budget, paying all your bills on time and avoiding building new debt. Research any new loan or credit application to see whether bankruptcy will cause automatic denial. Applying for new credit too soon or having multiple denials can hurt your credit even more. A good tool to improve your credit is a secured credit card. These cards require a deposit, which can be equal to your spending limit. Otherwise, you can use them like any credit card. Paying the full balance every month will have a positive impact on your credit. During bankruptcy, you may have the opportunity to make a reaffirmation of a debt, where the specific debt is not included in the bankruptcy. This would be beneficial for something like a car loan, where you would be able to keep your car as long as you can still make the payments. Keeping the loan in good standing can help you build your credit.
When Should You File For Bankruptcy?
Filing for bankruptcy is not an easy, quick fix. It offers relief from debt; however it does come at a cost. Bankruptcy can have a negative impact on your credit score and linger on your credit report for 7-10 years and it could even cause you to lose personal possessions. Despite the cost, bankruptcy provides an effective solution for unsustainable amounts of debt.
You should consider filing for bankruptcy if you…;
• Are unable to pay your debt or bills
• Cannot make progress on credit card balances
• Behind on any bills or expenses
• Facing foreclosure or a repossession
• Have unmanageable medical bills
• Are being sued for debts
• Are being harassed by debt collectors
What Bankruptcy Can and Cannot Do
Millions of underwater debtors including individuals and businesses have turned to bankruptcy for relief. While bankruptcy is a powerful way to shield debtors from further debt collection efforts, it does not solve all financial problems. Additionally, there are different things that bankruptcy can accomplish based on the type of bankruptcy that is filed.
Bankruptcy can do a lot for debtors, including: Eliminate Unsecured Debt. Both Chapter 7 and Chapter 13 bankruptcy filings can help wipe out unsecured debt, such as credit card debt. Other debts may include personal loans, medical debt and unsecured business debt. These debts are those that the creditor does not have a lien against the property and does not have the right to repossess the item purchased if the debtor do not pay off the debt. Although Chapter 13 bankruptcy can also eliminate unsecured debt, it does not have as great a capacity to eliminate it as Chapter 7. Chapter 13 bankruptcy requires the debtor to agree on a debt repayment plan and make continued payments for the number of years detailed in the plan. While secured debts usually have priority, most debtors have to pay back some portion of their unsecured debts. Any debts remaining after the repayment plan expires is generally discharged.
Place an Automatic Stay
Bankruptcy provides debt relief through an automatic stay. Once bankruptcy is filed, an automatic stay prevents further collection efforts from creditors, including phone calls, letters, repossession attempts or foreclosure actions.
Keep Certain Assets
Debtors can keep certain assets during a Chapter 7 filing, which are their exempt property. Federal and state specific laws determine which property is considered exempt and free from liquidation during the bankruptcy process. Bankruptcy does not eliminate liens, so property can still be taken by debtors that do have a lien against certain property. A Chapter 13 bankruptcy filing can help prevent a foreclosure action and require the lender to accept a plan that allows the debtor to reimburse the lender for missed payments. A bankruptcy lawyer is often needed during this process who can help show that the debtor will have sufficient income to provide for such payments while staying current on the existing debt. Additionally, Chapter 13 bankruptcy does not require the sale of the debtor’s assets, so he or she can also keep non-exempt property.
Reduce Secured Debt
In many cases, debtors find themselves underwater on their secured debts by owing more money to pay off the property than the property is actually worth. Chapter 13 bankruptcy may allow the debtor to reduce the debt of secured property and then pay off this reduced amount of debt. There are special rules that prohibit reducing secured debt of debts that were acquired within a certain time period near the bankruptcy filing.
Although bankruptcy can accomplish many things, some things that it cannot accomplish includes:
• Eliminate Tax Debt: Usually a Chapter 7 filing does not permit a debtor to discharge state or federal income tax debts. A debtor may be able to wipe out some of this debt in a Chapter 13 filing, depending on the type, amount and timing of the debt.
• Eliminate Support Obligations: Generally, obligations to pay child support or spousal support survive bankruptcy. With a Chapter 13 filing, the debtor is usually required to show how back payments will be paid in full within the repayment plan period.
• Eliminate Student Loan Debt: Most student loans cannot be discharged in bankruptcy. There are some exceptions; such as if the person is permanently disabled and can demonstrate that repaying the loan would cause undue hardship.
• Eliminate All Debt: In Chapter 13, the debtor has to repay much of the debt. Under both types of bankruptcies, the debtor may not be able to eliminate all types of debt, including the debts that the debtor forgot to list in the bankruptcy filing, fines and penalties for criminal action, criminal restitution and certain other debts prohibited by law. Additionally, a creditor may be able to convince a judge not to discharge a certain debt in the interest of fairness, such as not discharging a debt off a recent purchase or one that was made due to fraud.
Bankruptcy is a complex area of law and usually requires the assistance of a lawyer who is knowledgeable in this area of the law. A bankruptcy lawyer can explain the process of bankruptcy and provide information specific to the debtor regarding how bankruptcy can and cannot accomplish certain goals.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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