What Does Bankruptcy Mean for My Future?

Posted by Wesley Scott on July 31, 2017 at 5:15 PM
Wesley Scott

bankruptcy and my futureThere are many misconceptions and myths about filing bankruptcy. The biggest bankruptcy myth is that you will lose everything you own if you file for bankruptcy relief. Another popular bankruptcy myth is that you will never recover your good credit rating and never be able to obtain a loan after filing a bankruptcy. While there may be some truth intermingled with the bankruptcy misconceptions that clutter the internet, the fact is that filing bankruptcy does have both benefits and a few temporary disadvantages. Wondering what bankruptcy means for your future is a valid concern that many clients have when first consulting a bankruptcy attorney. It is with the help of an experienced bankruptcy attorney that many people find the answer to their question, “What does bankruptcy mean for my future?”

What Does Bankruptcy Mean For My Immediate Future?

The biggest and most significant impact bankruptcy will have on your immediate future is stopping all creditor harassment and legal proceedings. Upon the filing of a bankruptcy petition, the automatic stay provisions of the Bankruptcy Code prevent creditors from any further contact with the debtor. This means no more harassing telephone calls or threatening letters. The automatic stay also prevents creditors from filing lawsuits or continuing with a lawsuit without the Bankruptcy Court’s permission. Therefore, filing a bankruptcy will stop a foreclosure sale to save your home and prevent a creditor from repossessing the only vehicle you have as transportation to and from work.

Filing bankruptcy will have a temporary impact on your credit score. However, once you complete your bankruptcy case, your credit score will begin to improve as you continue paying secured debts on time and your discharged debts begin to drop off your credit report.

Within a few weeks after your bankruptcy case is filed, you will be required to attend the First Meeting of Creditors. This may be the only hearing you will be required to attend if you filed a Chapter 7 bankruptcy case. The hearings are typically short (five to ten minutes); your attorney will prepare you. In a Chapter 7 case, if there are no objections to discharge, the debtor receives the bankruptcy discharge within about four months from filing date of the case. Your personal liability to repay the unsecured debts is released and the debts are “wiped out.” You may chose to keep assets that were used as collateral for secured debts by continuing to pay the secured creditor. The belief that debtors lose everything when filing a Chapter 7 bankruptcy is not true. Most debtors lose no assets in bankruptcy.

The major difference in filing a Chapter 13 case (vs. a Chapter 7) is the repayment plan. Most debtors file a Chapter 13 to save their home, protect another asset or because their income is too high to qualify for a Chapter 7 bankruptcy. For your immediate future, a Chapter 13 case means that you will be in repayment for three to five years, depending on the length of your bankruptcy plan. However, once all plan payments have been paid, the court will issue the bankruptcy discharge and any remaining unsecured debts will be discharged, just as in a Chapter 7 case. Even though a Chapter 13 bankruptcy case requires more commitment and the repayment of some debt, it allows debtors to reorganize their debt into a manageable payment plan. This gives the debtor the same benefit of immediate “debt relief” as in a Chapter 7 case.

What Does Bankruptcy Mean For My Long-Term Goals?

As stated above, filing a bankruptcy case will cause your credit score to drop temporarily; however, the drop is not only due to the bankruptcy filing. Due to your inability to pay your debts, late payments, charge-offs and collection accounts already damaged your credit rating prior to the bankruptcy filing. However, going forward, the bankruptcy case will help you rebuild your credit score by removing or discharging old debts. As you continue to pay secured debts on time, your credit score will improve. It may be more difficult to obtain credit in the short term but most debtors who file bankruptcy and work diligently to pay their remaining debts on time each month report that their credit scores improve within a year after filing for bankruptcy relief.

The purpose of filing for bankruptcy is to gain a fresh start so that you can recover and rebuild from a financial crisis. After your bankruptcy case is completed, you can rebuild your credit fairly quickly by repaying debt on time. In addition, you can submit explanatory statements to credit reporting agencies that explain your financial crisis, to notify potential new creditors what you have done to correct your debt problem and how you plan to prevent it in the future. The mandatory credit counseling and financial management courses that are required in every bankruptcy case gives you the building blocks needed to successfully rebuild your credit.

What Does Bankruptcy Mean For My Future in General?

It means a fresh start and the ability to regain your financial independence from debt. Debtors no longer feel the negative stigma once associated with filing for bankruptcy relief. This feeling has been replaced with a sense of hope and relief because bankruptcy provides debtors with the ability to gain back control over their finances. Request a free bankruptcy consultation so we can show you how bankruptcy can have a positive impact on your future.

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Topics: Bankruptcy, Credit, Debt Free

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