Your Life After Bankruptcy

October 12, 2011 by  Filed under: Bankruptcy 

Debtors who are faced with overwhelming debt due to circumstances beyond their control such as a sudden job loss, a pay cut, a cut in hours, and a medical emergency, death in the family or divorce may have no other choice but to file for bankruptcy.

Bankruptcy is not necessarily a bad thing, it has received a bad reputation in years past but in today’s economy it is offering debtors a much needed fresh start. Bankruptcy gives people hope; it’s the light at the end of a very dark tunnel. If you are experiencing out of control debt, you are probably intimately familiar with the high levels of stress that is associated with having bills you can’t afford to pay.

Filing for bankruptcy does not mean that you can never get credit again; it doesn’t mean that you can’t get an auto loan or buy a house for the next ten years. Although bankruptcy does stay on your credit for ten years, there could still be many lending opportunities available to you despite the fact that you filed for bankruptcy. In fact, you may be a more attractive borrower after filing for bankruptcy because your debt to income ratio will be lower or non-existent, compared to if your credit cards were maxed out and if you were over-extended.

After a borrower files Chapter 7 bankruptcy, non-exempt assets are liquidated to pay off creditors and the remaining unsecured debt is discharged. In many cases, the bankruptcy is a no-asset bankruptcy, meaning that the debtor does not have any non-exempt assets; therefore, they get to keep everything that they have. In this case, the unsecured debts are discharged without having to liquidate anything.

Whether the borrower files a Chapter 7 bankruptcy, or a Chapter 13, they will experience immediate relief from the “automatic stay,” which will halt all debt collection activity. It will put a pause on any repossessions, foreclosures or wage garnishments. The automatic stay will also prohibit creditors from contacting you by phone or by mail.

Separate from the Chapter 7 bankruptcy, the Chapter 13 is a debt reorganization bankruptcy. Debtors who earn too much to file a Chapter 7 are directed to filing a Chapter 13. With a Chapter 13, the debtor’s bills are reorganized into a monthly payment that they can easily afford. These payments are spread out over a period of 3 to 5 years into what is called a Chapter 13 repayment plan. In both the Chapter 7 and Chapter 13 bankruptcies, the filers get to enjoy the benefits of the “automatic stay” immediately after filing.

Once your Chapter 7 or Chapter 13 is discharged, you will get to rebuild your credit rating. The Chapter 7 bankruptcy is the fastest and easiest of the two bankruptcies. Most filers receive their discharge within 4 to 6 months of filing. The months immediately following a bankruptcy are crucial for rebuilding your credit rating. When potential lenders look at your credit report, they want to see that you are focusing on rebuilding good credit after your bankruptcy. A potential lender would prefer to see “good credit” on your credit report after a bankruptcy as opposed to seeing nothing reported since the discharge.

You may want to wash your hands clean of credit cards after a bankruptcy but this is not the mindset that you need to have. It would be a big mistake not to establish credit after a bankruptcy discharge. There are a number of credit card companies out there that extend credit to individuals who have just completed bankruptcy. If you shop out the different credit cards on-line, you can compare interest rates and annual fees to find out what best suits your needs.

It is highly recommended post-bankruptcy debtors take out three credit cards after bankruptcy. It is essential that you do not max out these cards. It is best to charge a small amount, approximately 10% to 20% of the credit line each month, and to pay them off in full each statement period. It is a good idea to charge things that you would normally buy anyway like gasoline or groceries. After using a small amount of your credit every month and paying it off in full each month, you will slowly start to re-establish a good credit rating. This will be essential if you want to rebuild your credit after bankruptcy.

Be savvy, after a year or so of timely payments and maintaining a zero balance on your credit cards, you should be able to obtain lower interest rates and no-annual fee credit cards. It is crucial that following bankruptcy, you avoid the pitfalls that led you to filing bankruptcy in the first place.

Live within your means, establish a solid budget and stick to it. It is very important to remain steadily employed, and to avoid moving around a lot. If you can keep your job, and stay in your home, it will show stability to potential lenders. Rebuilding your credit after bankruptcy is not impossible, it is actually easier than it may seem. With hard work and discipline you can be on the road to financial recovery and a good credit rating after bankruptcy! If you would like more information about filing for bankruptcy or life after bankruptcy, contact a bankruptcy attorney today!

The Vidrine Law Firm, PLC is proud to represent the residents of Tucson and the surrounding areas. Since the recession, and the real estate collapse, their firm has seen its fair share of individuals and families struggling with overwhelming debt and upside down mortgages. They take pride in the fact that they have helped countless debtors find the relief they needed through filing for bankruptcy or through other alternatives to bankruptcy. They would like to meet with you and go over the specifics of your case; they are certain that they can provide you with optimal solutions that can help put you on the path to a new and brighter future. Contact a Tucson bankruptcy lawyer from their firm at (520) 704-6690.

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