If you’ve searched for bankruptcy information online, odds are good you could greatly benefit from discharging and eliminating your debt through bankruptcy.
Many people fear filing bankruptcy because they simply don’t fully understand the process, and the landscape of their personal finances after the bankruptcy. Do you fall off a cliff? Do you live in shame for the rest of your life? Will lenders forever shun you? The answer to all of these questions is a resounding NO!
Bankruptcy is a legal means eliminate the burden of debt. It is in the US Code for a very good reason, to geive good people the opportunity for a fresh start without the overwhelming negativity that comes with debt.
Let’s take a look at what happens when you file bankruptcy.
There are a few things that happen immediately after filing for bankruptcy, some good, some bad.
Personal bankruptcy does impact your credit score in some way. If you are one of those VERY rare borrowers who is going into bankruptcy with a stellar credit score in the 700’s, chances are that will be negatively impacted and drop. However, most people going into bankruptcy have a ton of debt, many creditors, high balances on their cards, high utilization percentages, and have late payments or other negative items already including collections, charge off’s, even lawsuits and judgments.
For those with these challenges already (even without a missed payment), bankruptcy likely will improve your ability to obtain future credit. When a borrower has a large amount of debt (high utilization percentage), they are NOT a good credit risk already even before bankruptcy and it’s unlikely any new creditors will extend more credit (and you’ve probably tried).
So what have you really lost? The truth is, for nearly all individuals filing bankruptcy, you are a much better credit risk to take for creditors AFTER a bankruptcy rather than before! It’s logical if you think it through, after bankruptcy, you (presumably) have no more debt, and no more creditors. A new creditor will view that positively because you have no other creditors pulling at you and collecting money for old debts, to say it another way, the new creditor has you all to themselves. Additionally, you can only file a typicaly chapter 7 bankruptcy every 8 years, so the new creditor will have a good run with you without the risk of a future bankruptcy.
For most people the “Good” aspects of bankruptcy are fairly obvious, including the outright elimination of all qaulified debt upon discharge. This means your accounts go to “$0.00 on your credit report (or at least they should). If your creditors are still reporting a balance, you’d have a great lawsuit against them which a lawyer would likely take on contingency. Creditors absolutely must not report debt as “outstanding” or “due” after it’s been discharged in bankruptcy.
Less obvious is the emotional and psychological improvement bankruptcy provides. The overwhelming burden of debt will be gone. For most people, this immediately eliminates the most negative factor in their lives. Living “Debt-Free” will be not just a relief, it will be life changing!
Finally, the Bankruptcy Code allows for most asssets to be “exempt” and kept through the bankruptcy. Approximately 97% of cases filed turn out to be “No-Asset” cases, which means the trustee or Court does not sell anything you own. There are exemptions for the home you live in, cars, personal property, jewelry, tools, clothing, furniture, electronics, firearms, and much more. The Court does not want to desmimate consumers financially, the goal is a true Fresh Start!
After the bankruptcy case is discharged and closed and all your debt goes away (presumably), as time passes, your credit scrore will get better and better. You can help yourself improve more quickly by taking out small loans and paying them back on time consistently. One example of this is few secured credit cards. I know it’s not that exciting to get a secured credit card, but I can assure you it does help.
Additionally, collateral based loans which you choose to keep paying will help, such as a retained car loan, or mortgage that’s paid on time every month.
Eventually, as the bankruptcy gets older and older, as long as no excessive new debt is obtained and defaulted, your score will imporove. In fact, many clients have achieved a 720 FICO score within one year of bankruptcy! This process takes some work, but it is certainly possible, and our office can help you get there.
Don’t lose sight of the big picture. It’s easy to get caught up in the negativity of debt, but there are solutions, good solutions, for everything you may be facing. We have been through this process thousands of time with clients. Although you may feel that your situation is uniquely complicated, I can assure you, we’ve seen it before. We will analyze your financial situation and find solutions that work for you. Let us be the advocate you need.
Are you ready to set down your heavy financial burden? Let McFarlin LLP be your personal advocate. Check out our website to learn all about the legal services we offer.