The decision to file bankruptcy arises from relenting financial pressure and the absence of feasible alternatives to lessen it. Debtors likely encounter guilt, frustration, a sense of failure and perhaps fear of irreversible financial consequences. If you have filed or are considering bankruptcy, treat it as a remedy. Specifically, Congress created bankruptcy as a way to give debtors acting in good faith a clean financial slate. Below are the ways you can harness the fresh start of bankruptcy and prevent creditors and employers from depriving you of the benefit.
Leaving Past Debts Behind
At the moment you file bankruptcy, an automatic stay goes into effect. This halts lawsuits, foreclosures, wage garnishments, collection calls, and demand letters. When your Chapter 7 ends, you get a discharge of most debts. Common debts that remain after your bankruptcy include debts you reaffirm, child support, federally-guaranteed student loans, debts that you incur because you committed fraud and debts you do not list in your bankruptcy case. Mortgages, judgments, and other liens remain on your land or other property, but you do not have personal liability for the debts represented by those liens.
Creditors cannot try to collect from your debts that have been discharged in bankruptcy. Without this discharge stay, you cannot fully enjoy the fresh start afforded by bankruptcy. If you get calls, letters, demands or lawsuits on discharged debts, you may be able to recover penalties and damages from offending creditors.
Keeping Your Property
While known as liquidation bankruptcy, Chapter 7 does not leave you without any property. During your bankruptcy, you are allowed to claim certain property as being exempt, or protected, from being sold or taken to pay creditors. You face limits on what you may protect. If you are concerned about whether you can exempt all of your property, you may need to learn how from Chapter 7 lawyers. Bankruptcy attorneys gather information about your property to show you what you can protect and how to do so. Exempt assets include your residence, a motor vehicle, personal or household goods and tools you may use in a business or trade. Bankruptcy law also protects your retirement against claims of creditors.
Exemptions promote your fresh start in that you do not have to accumulate debt or stress over income in order to have a place to live, a car to drive, clothes to wear or engage in work. During that time, you can concentrate on employment and other measures to build your income in order to afford to replace items or make payments on any future loans for cars.
Handling New Debts
Conventional wisdom generally holds that a bankruptcy inflicts serious harm on your credit. How much will depend on your pre-bankruptcy credit history. If you had credit scores north of 700, a bankruptcy may cost you at least 200 points.
Those with lower credit scores likely will see less of a drop from a bankruptcy. If you scored well below 700, filing bankruptcy may have less of a negative impact on your score. The mounting of past-due payments accounts referred to collection, lawsuits or even judgment precedes bankruptcy. Your financial condition might have caused you to reach limits on many credit cards, accumulate high balances and miss payments. All of these circumstances generate low credit scores and poor credit histories. The fact that you filed Chapter 7 bankruptcy is often evidence of already poor credit.
In fact, you may find more credit card offers as time passes. Remember that the discharge has eliminated all or most of your unsecured debts. Credit card companies have less trepidation in extending you credit if you’re not beholden to other debt obligations. These offers can translate into opportunities to build a new record of consistent on-time payments.
This does not mean that you will have offers with large credit limits, at least initially after bankruptcy. You will likely have accounts that pose little risk of becoming delinquent. Secured credit cards rely upon funds you deposit in an account as collateral. The balance in the account represents the limits of what you can charge. Retailers may issue store credit cards to you because you use will be limited to the department store. Store cards typically carry smaller limits than general use credit cards. With these features come less spending on the cards.
Keeping Your Job
Speaking of employment, you understandably may have concerns that bankruptcy can cause you to lose your job or hamper your ability to find one. The bankruptcy laws prohibit employers from taking negative action against you solely because you were in a bankruptcy proceeding. The restrictions against retaliatory acts cover being fired, demotions, pay cuts, and less favorable work assignments. If you become the target of such actions, a Chapter 7 lawyer or an employment lawyer can help you pursue a claim for damages.
Prospective employers may have somewhat more leeway in dealing with the applicant that has filed bankruptcy. In particular, employers may conduct credit and other background checks for those who apply for positions involving the handling of money or other financial matters. Your bankruptcy and other negative credit items will appear in your report. The ability to conduct credit checks is not unfettered, as the employer must obtain your written consent. Be advised that a prospective employer may not wish to consider you if you don’t consent to the check.
Reflecting on Your Financial Practices
The desperation that prompts bankruptcy ultimately leads you to reflect seriously on your financial situation and choices. In fact, you must undergo credit counseling prior to filing bankruptcy. The class affords you a serious and honest examination of your income, expenses and other facets of your personal finances. With the counselor’s assistance, you develop a budget. These exercises help you determine if you can repay your debts and avoid bankruptcy.
After you file bankruptcy, you must take a personal financial management course in order to obtain a discharge. The mandated debtor education addresses subjects such as how to manage and monitor your credit, the optimal level of savings, your rights as a consumer and reducing expenses. With these requirements, Congress hopes that debtors abstain from habits that raise the risk of serious financial problems and the need to resort to bankruptcy. Take the tips from these classes to heart as you emerge from bankruptcy.
To benefit from the fresh start of bankruptcy, you need to understand the reasons for your financial problems and your needs to take the drastic measure of bankruptcy. Enjoying your fresh start also means knowing your rights after a bankruptcy. These include not being pressured to pay discharged debts, loss of your job solely for filing bankruptcy and keeping property that you owned before bankruptcy. Contact a bankruptcy attorney if creditors or others seek to deny you the fresh start and other legal benefits of bankruptcy.