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Life After Filing Bankruptcy

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Life After Filing Bankruptcy

Written by Charles Newland on . Posted in Bankruptcy

A couple holding hands, bankruptcy attorney Many people facing bankruptcy are hesitant to file because of the negative impact it may have on their future. Although getting a car loan, mortgage or credit card will be more difficult in the short term, it is not impossible and as long as you keep your debts down and maintain your job status afterwards, your credit will rebound faster than you think. A bankruptcy attorney can explain the negative impacts on a person’s specific situation.

Bankruptcy Basics

Bankruptcy is a system of federal laws that help to eliminate all or most debt, so debtors are given a fresh financial start. Most people who choose to file bankruptcy will file a Chapter 7 or a Chapter 13 bankruptcy, depending on their situation.

Chapter 7

In a Chapter 7 bankruptcy, most unsecured debts like utility bills, medical bills, and credit cards are eliminated. Non-dischargeable debts incurred up to 90 days before filing bankruptcy include federal income taxes, student loans, child support payments, and credit card debt. These non-dischargeable debts are not affected by Chapter 7 bankruptcy. For secured debts like money owed on a home or car, a debtor can generally choose to forfeit the collateral and eliminate the debt, or keep the collateral and continue to make payments.

Chapter 13

In a Chapter 13 bankruptcy, all debts are combined. Debts are then restructured into affordable monthly payments for the debtor. Payments are made to a Trustee who uses this money to repay the debtor’s debts. Unlike a Chapter 7 bankruptcy, Chapter 13 provides a way for the debtor to pay back non-dischargeable debts like overdue taxes, student loans, child support payments, and penalties owed, and to catch up on past-due house and car payments while keeping his/her property.

Re-Building Credit After Bankruptcy

A Chapter 7 or Chapter 13 bankruptcy stays on a person’s credit report for up to 10 years, but it may not negatively impact credit for that long. Although a bankruptcy obviously has a negative impact on a person’s credit score, a bankruptcy attorney can establish guidelines that will help to rebuild credit after bankruptcy. With a structured plan of action, it’s possible to rebuild a good credit score within one to two years of filing bankruptcy.

In Illinois, individuals who choose to file bankruptcy must attend a pre-bankruptcy credit counseling course with an approved agency within the six months before filing bankruptcy. Upon completion, a certificate will be issued and must be filed along with the bankruptcy petition through a bankruptcy attorney. Individuals are also required to take a debtor education course after filing bankruptcy, before a discharge can be issued.

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