My Road Back From Bankruptcy

Posted on: 25 March 2015

If you have a significant amount of credit card and overdue bill debt that you simply cannot pay off, then it may be in your best interest to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy involves the liquidation or selling of property. Once property is sold off, the proceeds are divided up amongst the various debtors you owe money to. The bankruptcy process can be long, complicated, and confusing. This is why many people hire bankruptcy attorneys. You may want to do this as well, but you should first understand some important facts about the outcome of the bankruptcy.

Certain Debts Cannot Be Discharged

If you are in serious financial trouble to the point that you cannot pay off your debts, then bankruptcy may be able to set you on the right financial track once again. Unfortunately, many people believe that all debts are discharged through the bankruptcy process. This is not true, and there are several debts that will remain. You will still need to pay student loan payments, recent income tax bills, child support, alimony, and some types of legal settlements. Also, if you purchase expensive items three months before you file for bankruptcy, you may need to pay for these things.

Your attorney can inform you of the debts you will owe after the bankruptcy goes through. It is extremely important to provide your lawyer with all past bills and known debts so the discharged and non-discharged debts can be calculated. All remaining debts should be added together and a preliminary payment plan should be worked out. This will help to determine whether or not you can pay your bills after the bankruptcy. If you cannot, then bankruptcy may not be the best option. Credit consolidation may be a better choice for you.

Chapter 7 Bankruptcy Remains on Your Credit Report for 10 Years

Most people know that credit reports are affected negatively by bankruptcy and this fact may stop you from filing. Chapter 13 bankruptcy will be listed on your credit report for seven years and Chapter 7 and 11 types of bankruptcies will be present for 10 years. The bankruptcy is erased from the report based on the date it is filed. All accounts on the credit report will say they have been included in the bankruptcy.  

The bankruptcy reporting on your credit report may keep your from opening credit cards and finding a car loan with a decent interest rate. You may have difficulty applying for most types of credit, but your credit report will be clear eventually. Also, a bankruptcy will show future lenders that you have taken responsibility for your situation. You may then be seen as less of a risk than if you decided to default, miss payments, or if you have allowed property to be seized.  

You Can Rebuild Credit 

You can rebuild your credit as soon as the bankruptcy is finalized. This means you can continually raise your credit score within the 10 year bankruptcy period. This is not possible if you have lingering debts and defaults that need to be paid. A bankruptcy can reduce your credit score rating up to 240 points depending on your credit score at the time of the bankruptcy. Your score will then likely be somewhere in the 500 range.

With a poor credit score you may be able to qualify for a credit card with a high interest rate. It is wise to apply for one of these cards or for a secured one. Use the card and pay off the balance each month. If you do this and also pay your bills on time, then your credit score will rise.  

If you have large debts, then it may seem impossible to pay all of the lenders you owe money to. This may mean that you need to file for bankruptcy. Chapter 7 bankruptcy is an option, but you should make sure to understand the facts about it before you speak with an attorney.