Many debtors worry that a bankruptcy means the end of getting credit, that a black mark will stay on their record forever, that they won’t be able to get work and that there will be other permanent negative effects on their record. The good news is that most of those fears are untrue. Read on!
While bankruptcy does have negative consequences, there are positives that are built into the Bankruptcy Law, other consumer laws and into the overall bankruptcy process.
These are some of the Immediate Pluses to Filing and Completing a Bankruptcy
- Elimination or Reduction of Current Unsecured Loans
- Debtors can Keep Some Secured Property
- Other Ways in which Bankruptcy Can Improve One’s Life
- Why Debtors Can Prosper after Bankruptcy
Elimination or Reduction of Current Unsecured Loans
Unsecured debts are debts for loans or bills in which the debtor didn’t offer any security to get the loan or the service.
A Chapter 7 eliminates all the unsecured debt. This normally includes credit cards, medical bills and any loans that are more than the security interest in a personal item or real estate. A Chapter 13 reduces these unsecured debts to a small percentage on the dollar.
By eliminating or reducing these debts, the debtor is relieved of the financial burden of ever having to pay for these debts. The debtor also doesn’t have to worry about any harassing or upsetting efforts to collect on these debts.
After the bankruptcy is discharged, the debtor gets a fresh start and can focus on a new life.
Debtors can Keep Some Secured Property
Debtors who file a Chapter 13 bankruptcy and complete the payment plan get to keep their secured assets such as a home, cars, tools of the trade, furniture and other items.
Debtors who file a Chapter 7 bankruptcy and reaffirm a debt get to keep the secured personal item (excluding a home) as long as they pay the bills for that item pursuant to the terms of the reaffirmation agreement.
Other Ways in which Bankruptcy Can Improve One’s Life
Getting new credit: Because debts are eliminated, some creditors can see your financial situation as better.
If you can show you have steady income, creditors may begin to extend credit because they will be first in line and because they know you don’t have any immediate obligations to pay anyone else. The biggest keys to credit are still your ability to pay the loan which depends on your income and your assets.
For secured items, the more you can put down the better. Large down payments protect the creditor because the creditor then knows he/she can the rest of the loan back by repossessing the item if needed. A large down payment on a car plus an income will encourage many car lenders.
Debtors need to be careful. Some lenders may even rush to give a debtor new credit but at a high price. The price is often high interest rates, fees and costs.
Debtors should be very cautious about buying things on credit unless they are really sure they can pay for the item. Having said this, a higher interest rate is often what creditors will require since many look to your credit score. If the score is low, the interest rate will normally be high.
Paying on credit or even paying through a reaffirmation agreement can help a debtor’s score as long as the debtor makes the payments on time. Many debtors, who can show a good income, should eventually be able to rent, buy a car and even, with time, buy a new home.
The stigma of bankruptcy is not what it used to be. Because of the bad economy, loss of job, high medical bills; many people understand why someone might be forced to file a bankruptcy.
Bankruptcy should be a time to reflect and really understand the reasons you got behind on your bills and how you can stay current going forward.
Why Debtors Can Prosper after Bankruptcy
Filing the Chapter 7 bankruptcy or Chapter 13 bankruptcy often stops creditors from getting a judgment which can be entered on court records and on a credit report. Judgments which were entered prior to the bankruptcy should be removed if the debt was properly discharged or was paid through the bankruptcy.
Credit Record: Valid judgments (again most judgments should be discharged) should only stay on a person’s credit report for 7 years. Even the bankruptcy itself should only stay on the credit report for 10 years. After the time has expired, the judgment or bankruptcy should be removed.
While some creditors may ask specific questions such as whether you had any prior judgments or bankruptcies, many people and businesses that give loans only check your credit report.
Employment: Many companies do not look at your credit report before hiring you. If they don’t look at your report, then you have a reasonable chance of being employed if your skills, education and experience match the needs of the company.
Even if the company does look at your credit report, they still may hire you if you are a good fit for their needs though they may want you to explain why you got into difficulties.
Companies that already hired you rarely discharge employees for filing a bankruptcy. In fact, one of the reasons people file for bankruptcy is to stop a wage garnishment which would put your employer on notice of your difficulties. Many employers know that people file for bankruptcy for a lot of reasons out of their control and they do not hold the filing against the filer.
There may even be laws against firing you that an experienced bankruptcy lawyer will know.
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