After filing for bankruptcy you can expect certain events to occur and results to set in. There are many misconceptions about life after bankruptcy which deters debtors from filing. Bankruptcy will get you out of your difficult financial situation, impact your credit and require patience and responsible financial management.
Post-Bankruptcy Implications on Debt
The first and most rewarding element of life after bankruptcy is the elimination of your debt. Not only are you free of your financial burden, but your stress will lift and you will be able to get your life back on track. Depending on what chapter you file, you will either be released from your debt completely and immediately (chapter 7) or you will enter into a manageable payment plan and released from your debt when the plan commences (chapter 13).
Along with debt elimination, creditor harassment will come to an end. During bankruptcy your creditors will be notified of your filing and be required to stop all collection activities against you. Post-bankruptcy this requirement remains and creditors are forbidden by law to attempt to collect on any debt that was discharged.
Non-dischargeable debts (i.e. child support), debts the bankruptcy court denies and any debts you choose to retain (i.e. car loan) during the bankruptcy process will require continued timely payment.
Implications on Credit which Happen After Bankruptcy
The implication on credit is one of the most common bankruptcy misconceptions. There is confusion between the effect on the credit score and the note that gets applied to your credit report.
A note will appear on your credit report that simply states “account was included in bankruptcy.” If a chapter 7 is filed this notation will remain for 10 years and if a chapter 13 was filed this notation appears for 7 years. These timelines are not synonymous with the impact on credit scores.
Your credit score will drop temporarily based on how much debt you had and how many accounts were involved. This drop isn’t solely based on filing for bankruptcy; your credit will be damaged due to the debt you incurred and your inability to make payments.
Additionally, getting credit in the future may be more difficult. Creditors are going to be skeptical because of your history which is why they may only offer you credit at high interest rates. Getting a mortgage, a small business loan and even a car loan may be difficult for the short term. This is where patience and responsible finance management is necessary to prove your credit-worthiness.
What You Can Do
Don’t be afraid of credit. After filing for bankruptcy you can rebuild your credit fairly quickly. You should establish a new source of credit and manage it responsibly. Show creditors you are capable of making payments on time.
Additionally, you can submit explanatory statements to credit report agencies that explain your past financial situation, what you have done to fix it and how you are planning to be responsible in the future. These statements can remain on your credit report until you choose to remove them. They simply provide a justification for any negative implications that appear on your credit report (i.e. low credit score or bankruptcy notation), visible to anyone examining your credit report.
If excessive spending, living outside your means and overall poor financial decisions or management caused you to fall into debt, seriously consider fixing these underlying issues so you don’t fall back into your old habits. Credit counseling and financial management courses taken during your bankruptcy filing process should be taken seriously and applied to your life post-bankruptcy.
What happens after bankruptcy isn’t as dreadful as its reputation leads debtors to believe. Bankruptcy is a fresh, new beginning that gives you stress-free breathing room and time to get back in control of your finances. Rebuilding credit post-bankruptcy can take a little time and effort, but it is manageable, possible and easier done without debt weighing you down.
If you are interested in learning more about what happens after bankruptcy, the bankruptcy process or you would like an assessment of your financial situation to see if bankruptcy is right for you, request a free consultation from one of our bankruptcy attorneys.
