There are many misconceptions surrounding bankruptcy. For instance, while many people seem to think that you can’t ever recover from bankruptcy, others see it as a get-out-of-jail-free card for “lazy” people. Neither of these are actually true.
The reality is that there are many benefits and risks that come with filing for bankruptcy. But there is life after filing and you can recover from the impact it will have on your credit.
One of the more important factors to consider prior to seeking bankruptcy protection is how you’ll deal with the aftermath of filing. Our bankruptcy attorneys at The Law Offices of Phillippe & Associates want to educate you on how bankruptcy affects filers’ finances and how to rebuild those finances after the process is over.
If you think that bankruptcy might be the right decision for you, we recommend you seek the assistance of a competent Brownsville bankruptcy lawyer to guide you through the process.
How Filing Affects Your Finances
Bankruptcy can be an incredibly useful tool for those facing levels of debt beyond what they can handle.
However, bankruptcy does come with certain penalties that can have short-term and long-term negative effects. The decision to use bankruptcy as a tool should be taken seriously, and it’s important to take time before filing to understand how the process will affect your finances after you seek relief.
Directly After Filing
The road to recovery after bankruptcy starts right after you file. You first will meet with your court-appointed trustee and creditors to inform them that you have filed bankruptcy. At this point in the process, any of your non-exempt assets, including cash and certificates of deposits (CDs), will be liquidated and turned over to your trustee to repay your debts. You will likely be able to keep your home, car, and personal belongings.
Your Debts After Bankruptcy
If you filed for Chapter 7, then your remaining debts will be discharged after as much as possible is paid off with your liquidated assets. If you filed for Chapter 13 bankruptcy, you and your trustee will create a repayment plan for you to follow to pay off your remaining debt over the course of 3 to 5 years.
Seeking Credit After Bankruptcy
After you file, you will probably find it difficult to get credit or loans for the next few years. It may be possible for you to get a loan within a year of filing, but you are likely to be charged incredibly high-interest rates. You also may not be able to get approved for credit for major purchases, such as a new car or home.
Bankruptcy and Your Credit Report
Your bankruptcy will be reflected in your credit score for up to a decade depending on the type of bankruptcy you file. If you file for Chapter 7 bankruptcy, then your filing will be on your report for ten years. However, if you file for Chapter 13, then your filing will only be on your report for seven years.
Unexpected Side Effects
There are a few other odd effects you may experience after filing for bankruptcy. This is largely due to the relatively public nature of bankruptcy records. Your insurance rates could increase as many insurance carriers conduct a credit check during their pricing process. If you are facing payroll deductions as a part of your Chapter 13 repayment plan, at least one person at your place of work will know about your bankruptcy.
Another unexpected result of bankruptcy is that you may be required to place your private school children in public school. The court can order such a change unless you have sufficient justification for the added expense. Acceptable justification could include your religious beliefs.
The Road to Recovery
Filing for bankruptcy can have a meaningful impact on your credit and finances for many years to come. However, there are steps that you can take following your filing to recover your credit and straighten out your finances more efficiently and effectively.
1. Maintaining a Frugal Lifestyle
After filing for bankruptcy, your finances will be something of a clean slate — but that doesn’t mean you can start spending recklessly. This is especially true if you filed for Chapter 13, because you will still need to repay your debt. Being frugal also means getting a job if you don’t have one already. You need to be able to pay for your living expenses while ideally building an emergency fund to avoid any future issues. You may find that your lifestyle will need to change drastically after filing.
Reasonable spending and employment are also important for your credit. You need to be able to show creditors, present or future, that you can be responsible and that you can make and maintain an income. This can keep you from facing negative results such as being denied a lease or job due to your credit.
Failure to do so can lead to an unfortunate cycle in which those with a bankruptcy on their credit report are unable to get a job to create positive credit and show their reliability.
2. Paying Your Bills
This step is directly related to the first one in that it will help you recover your credit. However, the speed and way you go about rebuilding your credit is largely up to you. No matter how you choose to go about your financial recovery, one major factor should be to consistently pay your bills on time. After filing for bankruptcy, sliding back into debt should be avoided at all costs, so you will need to be careful with your spending to ensure that you have enough to pay all of your bills on time.
3. Secured Credit Cards
To begin rebuilding your credit after bankruptcy, you may want to sign up for a secured card. A secured card allows you to place a deposit in order to establish a line of credit for that deposited amount or more. Unlike prepaid cards, the use of a secured credit card improves your credit. Be sure to use it with care and always pay it off on time. This will show anyone checking your credit report that you are attempting to rebuild after your filing. However, if you start to pick up debt again, stop using the card immediately.
4. Building Savings
Another way to improve your financial outlook after filing for bankruptcy is to open and maintain a savings account. Having an emergency fund can help prevent the need to seek credit in the future. Plus, a savings account improves your financial profile. Even if you can only afford to save $5 or $10 per week, a savings account is always a good idea.
5. Use your New Knowledge
If you’ve just filed for bankruptcy, you have considerable experience that you can leverage in future financial situations. You know the importance of managing and monitoring debt, and you know how to make difficult choices. You can use this experience to help you avoid future financial mishaps. You should also show potential lenders, renters, or employers that you have learned from your experience and that you intend to do better. That means following all of the steps listed above to rebuild your credit, as well as generally doing your best to be a model citizen.
6. Staying Optimistic
This step may be both the most important and the most difficult of all. To begin rebuilding your credit, you need to recognize that rebuilding your credit is possible. You need to be dedicated to the process of restoring your financial outlook. You also need to be able to convince others that you’re up to the challenge of paying off debts and spending responsibly. Try to say positive and keep a good attitude, especially when speaking with potential creditors. The first steps are to begin rebuilding, and the final step is to “sell” that rebuilding process to others.
The Law Offices of Phillippe & Associates: Your Brownsville Bankruptcy Lawyers
As we’ve shown, bankruptcy isn’t a process to be taken lightly. If you’re struggling with debts beyond your means, it’s worth considering the ways that bankruptcy can help you. However, there are drawbacks to filing that may make it less attractive to some debtors.
Before filing, you need to take into account the effects it can have on your finances over time.
If you’ve already filed for bankruptcy, then it’s important to stay positive and dedicated to your financial future. You should begin considering ways to rebuild your credit as soon as you’re done filing. There are lots of options for establishing good credit, and many who file bankruptcy are able to recover in a number of years.
Remember, there’s no shame in using the tools that are available to you for help.
If you think bankruptcy can help you, the Brownsville bankruptcy lawyers at The Law Offices of Phillippe & Associates would be proud to assist you with the process.
Contact our team today to learn more about your options.