Bankruptcy is aimed at giving you a second chance; a fresh start with your finances. But not knowing what happens after you file for bankruptcy can be scary.
What Happens After You File for Bankruptcy?
The following things will happen after you file for bankruptcy:
A Trustee Will Be Assigned to Your Case
Once you file, a bankruptcy trustee will be assigned to your case. This trustee will be in charge of administering your bankruptcy filing. In general, the trustee will either:
• Oversee the liquidation of assets in a Chapter 7 case, or
• Oversee the repayment of debts in a Chapter 13 case.
You Will Attend a “Meeting of Creditors”
The first thing the trustee will do will be to call a meeting of creditors. This is also called the 341 creditors meeting. During this meeting, the trustee will ask you, under oath, about your assets and debts. Creditors can attend this meeting and ask you questions. But usually, it will be just you and the trustee.
An Automatic Stay Will Stop Debt Collection
Filing for bankruptcy will trigger the automatic stay. The automatic stay will ensure that creditors will not try to collect from you while your case is pending. What this means is they can’t contact you to collect on debts like credit card debts and other types of unsecured debts. The automatic stay will also stop the garnishment of your wages.
You Will Attend Financial Management Courses
Before filing for bankruptcy, you took a credit counseling course. After you file for bankruptcy, you will need to take another course that can help you after your debts are discharged through the bankruptcy process. It is only after you complete these courses that the bankruptcy judge will give you a debt discharge.
The Trustee May Sell Some of Your Property
If you filed Chapter 7, the trustee may liquidate some of your non-exempt assets and distribute them to creditors according to the priorities stated in the bankruptcy laws. You will get to keep many of your assets like some household items, your car, and items of clothing. You can learn more about this on our page about bankruptcy exemptions.
You May Begin a Repayment Plan
With Chapter 13, you must follow your repayment plan and pay off your debts within the specified time to get debt relief. You also have to pay non-dischargeable debts like child support and alimony in full.
Your Debts Will Be Discharged
In both Chapter 7 and Chapter 13 cases, you will get a discharge order from the bankruptcy court. This order stops creditors from taking any collection actions against you in the future.
What Happens to Secured Debts?
A secured debt is a debt a creditor secures with an asset. A mortgage can be a good example here. When you buy real estate and finance that house with a bank loan, you are giving the bank the right to initiate foreclosure proceedings if you fail to comply with the mortgage terms. In a Chapter 7 case, creditors can foreclose the property even after you file for bankruptcy if you don’t pay your secured debts. You can, however, keep the property if you make an agreement with the lender to continue making monthly payments on your loans. In Chapter 13 cases, you can retain your property if you continue to make payments through the Chapter 13 payment plan.
What Happens After Bankruptcy?
Once your case is finalized, you will get a discharge of most of your debts. Your creditors are also legally prohibited from trying to collect any outstanding debts from you. Bankruptcy will not discharge all your debts. What can be discharged will vary based on the type of bankruptcy you choose. But in general, the following debts will not be discharged after bankruptcy:
• Student loans
• Certain tax debts
• Child support and alimony obligations
• Certain debts from criminal fines
How Will Bankruptcy Affect Your Credit Score?
A bankruptcy filing will lower your credit score and may stay on your credit report and in public records for some time. Bankruptcy will stay on your credit for 10 years if you filed for Chapter 7 and seven years if it is a Chapter 13 bankruptcy. However, exactly how much a bankruptcy will affect your credit score will depend largely on your financial situation before filing bankruptcy.
You can take steps to rebuild your credit such as:
• Staying current on your bills
• Getting a new credit card or a secured credit card
• Trying not to borrow more than you can repay
Keep in mind that filing for bankruptcy might do more to help your credit than harm it. Consider what will happen if you continue to hold the debt and miss payments.
Can You Get a New Car or Buy a House After Bankruptcy?
Getting a car loan or a mortgage will be difficult immediately after your bankruptcy case is finalized. But by rebuilding your credit, you will have options in the future. For instance, getting a secured credit card or applying for installment loans may be good options for you to start building your credit.
What If You Get Into Debt Again?
Depending on the timing between discharges, you may be able to file for bankruptcy again. Here is the timeline:
• From Chapter 7 to another Chapter 7: Eight Years
• Chapter 13 to another Chapter 13: Two years
• From Chapter 7 to Chapter 13: Four Years
• From Chapter 13 to Chapter 7: Six Years
If you don’t qualify for another bankruptcy or you simply don’t want to file again, you also have other options to becoming debt-free.
Budgeting After Chapter 7 Bankruptcy
Many people file for bankruptcy due to no fault of their own after experiencing an unexpected event, such as an illness, job loss, or divorce. Even so, everyone can benefit from cutting unnecessary costs and building a nest egg to fall back on—not just those who filed for bankruptcy to wipe out credit card balances. Reviewing your spending habits and making a comfortable budget is a commonsense place to start. Avoid buying items on credit that you can’t afford to pay for in cash. If you take out new credit cards, pay off most, if not all, of your account balance each month so that you don’t accrue interest.
Credit Scores After Chapter 7 Bankruptcy
Filing for bankruptcy comes with a downside it can hurt your credit initially. Although a Chapter 7 bankruptcy will usually stay on your credit report for ten years, the impact goes down with time. Your bankruptcy won’t prohibit you from obtaining new credit and moving on with your life. If you’re like most, your case will move through the process in about four months, and you’ll be able to begin rebuilding your credit after receiving your bankruptcy discharge. In fact, most debtors start receiving new credit card offers shortly after they receive their discharge. Credit card companies realize that your discharge will free up money for other bills, so you’re more likely to pay back your debts after bankruptcy. Plus, you won’t be able to wipe out debt again using the bankruptcy process for several years. Find out when you’ll be eligible for another bankruptcy discharge.
Rebuilding Credit After Chapter 7 Bankruptcy
Keeping your available credit high is a factor that drives up your credit score, along with maintaining a mix of credit types, such as a home loan, car loan, and credit card accounts. So when you begin using credit again, you’ll want to keep balances below 30%. Keep reading for other factors to consider.
Evaluating Credit Card Offers
You will typically begin to receive new offers for credit after bankruptcy. However, be aware that many new credit card offers will have low limits, high-interest rates, and high annual fees. Reviewing the offer terms carefully before signing up for a new credit card after bankruptcy is essential. The goal is to accept a credit card with the highest possible limit because credit reporting agencies rate you based on your total available credit. Not only can lower limits can harm your score, but you’ll want to pay off the majority of your balance each month. If you don’t qualify for a typical, unsecured credit card, you might want to start rebuilding your credit by getting a secured credit card from your bank. You’ll deposit a certain amount of money in the bank as collateral for the card. In exchange, you have a line of credit equal to the amount in the account. A secured credit card rebuilds credit because the creditor typically reports payments on your credit report; you’ll want to be sure that will happen.
Monitoring Your Credit Report
Also, it’s essential to examine your credit report for mistakes after your discharge. If you notice an error, correct it promptly so that it doesn’t derail your efforts to rebuild your credit. You can check your credit report for free using annualcreditreport.com (use the official site, not a lookalike). You’re entitled to one free copy per year from each of the three reporting agencies. Requesting a report from one of the three agencies every four months is an excellent way to keep track of changes. Also, all of the three reporting agencies allow you to file a dispute online.
Buying a Car or House After Chapter 7 Bankruptcy
Many people are surprised to learn that filing bankruptcy won’t derail a car purchase or homeownership for long. If the bankruptcy helps clean up your credit faster than you’d be able to do on your own as it does for many without the means to pay off outstanding debts—your dream might be closer than you imagine. Specifically, if you take steps to rebuild your credit, it’s possible to get relatively reasonable interest rates when buying a new car within one to two years after bankruptcy. Securing a home loan within four years is well within reach—and some people start the home purchasing process in as few as two.
Which Debts Do I Still Owe after Bankruptcy?
When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them. However, certain types of debts are not discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:
• Alimony, maintenance or support for a spouse or children.
• Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them.
• Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.
• Most taxes. The vast majority of tax debts cannot be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss them with your lawyer.
• Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
• Drunk driving injury claims.
How Long will Bankruptcy Stay on My Credit Report?
The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy. This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems. Debts discharged in your bankruptcy should be listed on your report as having a zero balance, meaning you do not owe anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506