No one wants to live with a poor credit rating, even after the filing of a bankruptcy. A bankruptcy can remain on an individual’s credit report for up to 10 years. However, you might be surprised to find that your score can rise, even to the low 700s within two or three years after the completion of our bankruptcy, and ultimately continue to rise. How does this work?
Main Bankruptcy Chapters
There are two main chapters of bankruptcy for most people to file. Which bankruptcy you file is based upon certain circumstances.
Are you trying to save your house and your vehicle? Do you have assets that may not be protected, or can you afford to pay back your debts over a period of time? In this situation, the Chapter 13 may be the most appropriate for you. Under a Chapter 13, a person can keep assets and undergo debt reorganization, with creditors accepting new repayment terms. Creditors desire repayment of the debt, and a Chapter 13 helps to support this by having some or all of the debt repaid.
Has your credit card debt become overwhelming, but you have been able to remain current on your house or vehicle but cannot pay your other creditors and still pay your monthly expenses? In this situation, the Chapter 7 may be the most appropriate bankruptcy for you. Under a Chapter 7, you may be able to quickly discharge debts and allow you a fresh start after only a few months.
In order to better understand which debts may be discharged by your bankruptcy, consult with an experienced bankruptcy attorney. The lawyer will be able to inform you which of your debts will be discharged after reviewing all of your pertinent financial information.
Discharge in Bankruptcy
What happens when Debts are discharged in bankruptcy? This order means that no one may make any attempt to collect a discharged debt from the debtors personally. For example, creditors cannot sue, garnish wages, assert a deficiency, or otherwise try to collect from the debtors personally on discharged debts. Creditors cannot contact the debtors by mail, phone, or otherwise in any attempt to collect the debt personally. Creditors who violate this order can be required to pay debtors damages and attorney’s fees. However, a creditor with a lien may enforce a claim against the debtor’s’ property subject to that lien unless the lien was avoided or eliminated. For example, a creditor may have the right to foreclose a home mortgage or repossess an automobile.
Most Debts Are Discharged
Most debts are covered by the discharge, but not all. Generally, a discharge removes the debtor’s’ personal liability for debts owed before the debtor’s’ bankruptcy case was filed. Also, if this case began under a different chapter of the Bankruptcy Code and was later converted to Chapter 7, debts owed before the conversion are discharged. In a case involving community property, special rules protect certain community property owned by the debtor’s spouse, even if that spouse did not file a bankruptcy case.
Some Debts Are Not Discharged
Examples of debts that are not discharged are:
• debts that are domestic support obligations;
• debts for most student loans;
• debts for most taxes;
• debts that the bankruptcy court has decided or will decide are not discharged in this bankruptcy case;
• debts for most fines, penalties, forfeitures, or criminal restitution obligations;
• some debts which the debtors did not properly list;
• debts for certain types of loans owed to a pension, profit sharing, stock bonus, or retirement plans; and
• debts for death or personal injury caused by operating a vehicle while intoxicated.
Also, debts covered by a valid reaffirmation agreement are not discharged.
In addition, this discharge does not stop creditors from collecting from anyone else who is also liable on the debt, such as an insurance company or a person who cosigned or guaranteed a loan.
This information is only a general summary of the bankruptcy discharge; some exceptions exist. Because the law is complicated, you should consult an attorney to determine the exact effect of the discharge in this case.
After The Debt Discharge
To qualify for credit, loans, and mortgages after bankruptcy, save. There is one way to save. Live within your means. After the bankruptcy is discharged, put into a savings account the first 10% of your earnings every pay period.
Depositing money into an interest-bearing savings account every pay period will give you a rising balance that will help persuade a mortgage specialist to go to bat for you when you need it.
Improving Your Credit After Bankruptcy
Within a month or two after filing for bankruptcy, you’ll know where your credit stands. Keep track of your credit with the three nationwide reporting companies: Experian, Equifax, and TransUnion. Under the Fair Credit Reporting Act, these firms must give you a free copy of your credit report annually upon request.
You can monitor your credit more frequently, at no charge if you pay an annual fee to Experian. Many credit unions show your quarterly credit score on your account’s web page of their secure members’ site. Your credit card company or bank might also offer free reporting. Free monitoring services (drawing information from the nationwide firms) include CreditSesame and the well-known CreditKarma.
Paying With Plastic
Apply to receive two or three major credit cards for the purpose of increasing your credit rating. If you find getting approved difficult, apply online for a major yet easily obtained card with a lower credit limit, such as Discover or Capital One. Avoid applying for a multitude of accounts, though. Accumulating credit inquiries can decrease your credit score.
In the very unlikely event that traditional credit card companies aren’t approving you for an unsecured credit card, apply for a secured credit card. The positive credit impact occurs either way, as you pay your balances faithfully. Very seldom have my clients been unable to receive an unsecured credit card after a discharge of the bankruptcy.
Never miss payment deadlines on credit cards or any bills for that matter. Don’t let your credit rating slide because you forgot to pay one of your bills.
Advice For Your Situation Is Available
This blog cannot offer case specific advice, and it does not constitute an attorney-client agreement. For legal advice on your particular case, schedule a consultation for advice and be prepared with the questionnaire available on our website.