What To Expect After Bankruptcy
What to expect in Bankruptcy is aimed at giving you a second chance; a fresh start with your finances. But not knowing what happens after you file for bankruptcy can be scary.
What Happens After You File for Bankruptcy?
The following things will happen after you file for bankruptcy: A Trustee Will Be Assigned to Your Case
Once you file, a bankruptcy trustee will be assigned to your case. This trustee will be in charge of administering your bankruptcy filing. In general, the trustee will either:
• Oversee the liquidation of assets, if any, in a Chapter 7 case, or
• Oversee the repayment of debts in a Chapter 13 case.
You Will Attend a Meeting of Creditors
The first thing the trustee will do will be to call a meeting of creditors. This is also called the 341 creditors meeting. During this meeting, the trustee will ask you, under oath, about your assets and debts. Creditors can attend this meeting and ask you questions. But usually, it will be just you and the trustee.
An Automatic Stay Will Stop Debt Collection
Filing for bankruptcy will trigger the automatic stay. The automatic stay will ensure that creditors will not try to collect from you while your case is pending. What this means is they can’t contact you to collect on debts like credit card debts and other types of unsecured debts. The automatic stay will also stop the garnishment of your wages.
You Will Attend Financial Management Courses
Before filing for bankruptcy, you took a credit counseling course. After you file for bankruptcy, you will need to take another course that can help you after your debts are discharged through the bankruptcy process. It is only after you complete these courses that the bankruptcy judge will give you a debt discharge.
The Trustee May Sell Some of Your Property
If you filed Chapter 7, the trustee may liquidate some of your non-exempt assets and distribute them to creditors according to the priorities stated in the bankruptcy laws. You will get to keep many of your assets like some household items, your car, and items of clothing.
You May Begin a Repayment Plan
With Chapter 13, you must follow your repayment plan and pay off your debts within the specified time to get debt relief. You also have to pay non-dischargeable debts like child support and alimony in full.
Your Debts Will Be Discharged
In both Chapter 7 and Chapter 13 cases, you will get a discharge order from the bankruptcy court. This order stops creditors from taking any collection actions against you in the future.
A secured debt is a debt a creditor secures with an asset. A mortgage can be a good example here. When you buy real estate and finance that house with a bank loan, you are giving the bank the right to initiate foreclosure proceedings if you fail to comply with the mortgage terms. In a Chapter 7 case, creditors can foreclose the property even after you file for bankruptcy if you don’t pay your secured debts. You can, however, keep the property if you make an agreement with the lender to continue making monthly payments on your loans. In Chapter 13 cases, you can retain your property if you continue to make payments through the Chapter 13 payment plan.
Once your case is finalized, you will get a discharge of most of your debts. Your creditors are also legally prohibited from trying to collect any outstanding debts from you. Bankruptcy will not discharge all your debts. What can be discharged will vary based on the type of bankruptcy you choose. But in general, the following debts will not be discharged after bankruptcy:
• Student loans
• Certain tax debts
• Child support and alimony obligations
• Certain debts from criminal fines
A bankruptcy filing will lower your credit score and may stay on your credit report and in public records for some time. Bankruptcy will stay on your credit for 10 years if you filed for Chapter 7 and seven years if it is a Chapter 13 bankruptcy. However, exactly how much a bankruptcy will affect your credit score will depend largely on your financial situation before filing bankruptcy.
You can take steps to rebuild your credit such as:
• Staying current on your bills
• Getting a new credit card or a secured credit card
• Trying not to borrow more than you can repay
Keep in mind that filing for bankruptcy might do more to help your credit than harm it. Consider what will happen if you continue to hold the debt and miss payments.
Getting a car loan or a mortgage will be difficult immediately after your bankruptcy case is finalized. But by rebuilding your credit, you will have options in the future. For instance, getting a secured credit card or applying for installment loans may be good options for you to start building your credit.
What If You Get Into Debt Again?
Depending on the timing between discharges, you may be able to file for bankruptcy again. Here is the timeline:
• From Chapter 7 to another Chapter 7: Eight Years
• From Chapter 13 to another Chapter 13: Two years
• From Chapter 7 to Chapter 13: Four Years
• From Chapter 13 to Chapter 7: Six Years
How to Recover From Bankruptcy
A bankruptcy causes a severe drop in your credit scores, and it persists as a negative entry in your credit file for many years. How long and exactly how much of a score drop depends on what your score was before filing, on the status of your existing credit accounts, and on the type of bankruptcy you file. A Chapter 7 bankruptcy, which wipes out all your debts, has the deepest impact on your credit scores and stays on your credit report for 10 years. A Chapter 13 bankruptcy, which restructures your debts so you pay off a portion of them in three to five years, remains on your credit report for up to seven years and is less harmful to your credit scores than
Check Your Credit Reports
Begin your recovery plan with a clear understanding of where your credit stands. Do this by checking your credit reports, reviewing them for accuracy, and disputing any entries that need correction. This process will be slightly different depending on which type of bankruptcy you file.
Checking Your Credit Reports After Chapter 7
If you filed Chapter 7 bankruptcy, wait until your case is discharged you’ll receive a letter from the court informing you when that’s done, usually no more than six months after your court filing. Wait 90 to 120 days after receiving the letter so your credit reports have time to update with the bankruptcy information, and then request your credit reports from all three national credit bureaus (Experian, Equifax and TransUnion). You can get a free Experian credit report every 30 days. You are also entitled to one free report a year from each of the three credit bureaus at AnnualCreditReport.com.
Review your reports carefully for accuracy and dispute any entries that need correction, taking care to note that:
• All credit accounts covered under the bankruptcy are labeled “discharged in bankruptcy” (not “charged off”) and list outstanding balances of zero dollars.
• If any debts were excluded from the bankruptcy filing, such as a mortgage, make sure they are not listed as discharged, and that payments are being reported.
Checking Your Credit Reports After Chapter 13
If you filed Chapter 13 bankruptcy, your case won’t be discharged until the end of your three-to-five-year repayment period, so you can just wait 90 to 120 days after your bankruptcy filing to request your credit reports. The status of accounts included in your Chapter 13 repayment plan may or may not be reflected in your credit report: Creditors are not obligated to report payments received during the Chapter 13 repayment period, but some do.
• Check to make sure payments to any accounts excluded from the bankruptcy settlement are being captured.
• Once your repayment period ends two and a half to five years after you file Chapter 13, depending on the terms of your repayment plan you’ll receive a notice that your case has been discharged. Wait about 120 days and then check all your credit reports. Make sure all loans settled under the repayment plan are closed and list zero balances.
Check Your Credit Scores
If you haven’t done so already, sign up for a service, such as the one from Experian that lets you check your credit scores for free. Your scores may not paint a pretty picture, but depending on how recently you filed your bankruptcy plan, they may not yet be at their lowest point: Your scores will decline significantly when you file bankruptcy, and if you file Chapter 7, they may dip further once the court has discharged your case a process that can take several months (and which may not be reflected in your credit file for several weeks after that). A Chapter 13 bankruptcy isn’t considered discharged until the end of the court-approved repayment period. If overdue or defaulted credit accounts significantly hurt your credit scores before you turned to bankruptcy a situation common to many filers you may find that filing for bankruptcy has less impact on your scores than you might have imagined, if only because your scores had already fallen about as far as they could. Some individuals with heavily damaged scores even see small score increases after filing Chapter 13 bankruptcy but their scores are still likely to be in poor territory. That can be a hard fact to face, but facing it is exactly how to begin your credit recovery plan.
Avoid Repeating Past Mistakes—and Making New Ones
You can make your bankruptcy a learning experience by reviewing your past missteps and taking care not to repeat them. Re-examine your old patterns of spending, borrowing and repayment (or lack thereof) to better understand exactly what led you to bankruptcy, and take steps to ensure you won’t go down those paths again. Consider working with a certified credit counselor to devise a realistic budget, set achievable money management goals, and establish a long-term plan for rebuilding your credit. Beware credit repair companies that promise to help re-establish your credit in short order, or clean up your credit report quickly. There are no quick fixes for bankruptcy. Rebuilding your credit after you’ve filed for bankruptcy takes time and patience. Millions have done it, and you can too.
Work on Rebuilding Your Credit
Once you have a solid sense of your credit picture, plan to monitor your credit scores monthly and check your credit reports annually. You can then take steps to begin building up your credit. Start by reviewing the factors that determine your credit scores, and habits that help them improve, and then consider these tried-and-true tactics:
• Take out a credit-builder loan at your local credit union. As the name implies, these loans are designed to help people establish or rebuild credit. The amount you borrow typically no more than $1,000 is placed in a special savings account, where it earns interest but is inaccessible to you until the loan is paid in full. You make a fixed payment (with interest) each month for a set period ranging from six to 24 months, after which the funds are yours. (Some credit unions also let you keep some or all of your interest payments.) As long as you pay on time every month and after a bankruptcy you should vow never to make a late payment again your payments will appear as positive entries on your credit report and will tend to increase your credit score. To get the maximum benefit to your payment history, consider asking for the longest-available repayment period. That’ll add to the total interest you’ll pay, but if you’re keeping the interest payments anyway, that just means you’ll save a little extra.
• Get a secured credit card. Another product popular at credit unions, but also offered by some banks and other institutions, secured credit cards do not require traditional credit checks. To get one, you must put down a cash deposit, and that sum typically becomes your borrowing limit. If you fail to pay your bills, the lender can take the deposit. If you use the card sparingly, but use it every month and always pay off your balance in full, you’ll establish an additional pattern of positive payments on your credit report. A good trick for making this work is to use the card for a payment that recurs every month such as a phone bill, gym membership and the like, and then set up an automatic payment to the card account through your checking account.
• Consider credit card offers. After you’ve logged a year or two of positive payments via a credit-builder loan, a secured credit card or both, start watching your inbox and mailbox for credit card offers. The pickings may be slim: borrowing limits low, interest rates relatively high and fees less than ideal. But if you apply for and get a card, you can begin proving you can handle mainstream credit. As with a secured card, use your new card sparingly but regularly, to create a pattern of on-time payments.
There Is Life After Bankruptcy
If you follow these steps, and take care to avoid repeating past missteps, you’ll find that your credit scores will begin improving within a few years after your bankruptcy filing. And by the time the bankruptcy falls off your credit report after seven or 10 years (you don’t need to do anything to remove it), you may find yourself eligible for a wide range of credit, at reasonable rates.
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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West Jordan, Utah
84088 United States
Telephone: (801) 676-5506