Most people don’t think of bankruptcy as the ‘solution-of-choice’ to their financial woes because of the long-term ramifications and social stigma. However, when you have no other means of keeping the ship afloat, bankruptcy offers hope to sail another day. For qualified applicants, bankruptcy can mean a fresh financial start and an opportunity for a secure future.
Chapter 7 and Chapter 13 bankruptcy are legal proceedings that are available to a person in severe financial distress. But remember, bankruptcy does have far-reaching and long-lasting effects, and should be considered only as a last resort.
Bankruptcies remain on your credit report for 7 to 10 years, so stay away from credit repair agencies that claim to be able to remove legitimate and verifiable bankruptcies from your credit history. Their methods are unethical and often illegal – and you may be the one facing criminal charges!
Creditors and Bill Collectors Must Stop Contacting You
By law, all actions against a debtor must cease once bankruptcy documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. Secured creditors such as banks, holding for example, a lien on a car, may get the stay lifted if you cannot make payments.
The Effects of Bankruptcy on Your Spouse
Your wife or husband will not be affected by your bankruptcy if he/she did not sign an agreement or contract for any of your debt. Your spouse would most likely be responsible if a supplemental credit card was issued meaning you each have your own card, but jointly applied.
However, in community property states, either spouse can contract for a debt without the other spouse’s signature on anything, and still obligate the other. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouses’ signatures on contracts. But the day-to-day debts, such as credit cards, do not require both spouses to have signed. Professional advice from a qualified bankruptcy attorney in your state should be sought to determine the effects on you and your spouse.
Even though Chapter 7 filings are public records, under normal circumstances, no one other than your creditors will know you filed for Chapter 7. However, the credit bureaus will record your filing and it will remain on your credit record for 7 to 10 years.
Keeping Your Current Credit Cards
Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will usually cancel the card unless you reaffirm the debt. Even having a zero balance, the credit card company may still choose to cancel the card.
Keeping Your Current Job
U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.
Keeping Your Possessions
In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee. You are allowed to keep certain assets, depending on the state in which you reside.
Rebuilding Your Credit
Several banks now offer ‘secured’ credit cards. These credit cards can be obtained when a debtor deposits a certain amount of money (as little as $200) into an account to guarantee payment. Usually the credit limit is equal to the security amount given and is increased as the debtor demonstrates ability to pay the debt.
Two years after a discharge in bankruptcy, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile as those who have not filed Chapter 7. The size of your down payment and the stability of your income will be much more important than the fact you filed Chapter 7 in the past.
The fact you filed Chapter 7 or 13 stays on your credit report for 7 to 10 years becomes less significant the more time has passed since the filing. Depending on your specific situation, you could be a better credit risk to some lenders after bankruptcy than you were before.
Costs of Filing Bankruptcy
The cost to file a Chapter 7 bankruptcy varies, but is generally about $200. Keep in mind that this is only a filing fee and in most cases you should consider consulting with a qualified attorney who is licensed in your state. Bankruptcy attorneys’ fees vary considerably throughout the country. It is not uncommon for bankruptcy lawyers to offer a free initial consultation, so shop around and meet with a few lawyers who offer the free consultation and see which firm you feel would most effectively meet your needs. Also, to keep costs at a minimum, organize your financial statements before your meetings with the attorney.