If you are considering filing bankruptcy, you probably have many questions. Some questions which few sites answer can have a big impact. The Chapter 7 bankruptcy FAQs below can make a large difference in understanding the bankruptcy process and how your specific situation can fit into that process.
Q: Will I be able to repair my credit after filing bankruptcy?
A: Bankruptcy is not a magic bullet. It will stay on your credit report for 7-10 years. However, depending on your credit situation prior to filing bankruptcy, bankruptcy can vastly improve your credit.
While a bankruptcy being listed on your credit report may not be ideal, it is much preferable to creditors (and the debtor) than a credit report that is littered with negative payment history and lots of debt.
Many debtors who file bankruptcy owe numerous creditors, collection agencies and have assorted negative debts listed on their credit report, such as foreclosures and repossessions. These debts, especially when grouped with late payments and charged off accounts, paint a picture of the debtor as an irresponsible person incapable of being trusted. While bankruptcy may seem like the worse option to choose, many creditors will prefer to give you credit because you no longer owe any company large sums of money.
Outside of the clean slate provided by the bankruptcy on most previous debt owed, the bankruptcy allows you to reaffirm certain loans (cars, houses, etc.). A reaffirmed debt stays on your credit report after you have filed your bankruptcy. This will also help rebuild your credit as you will get credit every month that you make you make your payment on time.
It is always a good idea to get a secured credit card. This will ensure that you won’t fall into any old habits, while still being able to rebuild your credit and get your score moving in a positive direction. You can use the secured card to purchase gas, groceries and other necessary items. If you are patient, make all payments on time and have a salary that can support your lifestyle, you will be able to rebuild your credit and purchase a new home or car (generally, it will be a much quicker path to buying a car as opposed to the house, which normally takes three years after discharge).
Q: What is a reaffirmation agreement?
A: A reaffirmation agreement ensures that a debt accrued prior to filing bankruptcy stays on your credit report as an official debt after the bankruptcy has been discharged, as if the bankruptcy never happened as it relates to that debt.
Most reaffirmation agreements relate to home and car loans. Occasionally, the agreement will be for another secured item, such as furniture or an air conditioner. The reaffirmation agreement is normally sent out by the creditor to the debtor’s attorney (if one has been retained) or to the debtors themselves.
The debtor should always review the agreement to ensure the terms are correct. Upon returning the agreement to the creditor, the creditor will file the agreement with the court. After sixty days, the agreement will be considered official and the debt will be treated as if a bankruptcy had never been filed. This will keep the secured debt on the debtor’s credit report, which will help rebuild the debtor’s credit.
Q: Can I lose my job if I file bankruptcy?
A: Many employers check the credit of their employees. As a result, many potential bankruptcy filers worry that they will not be employable or if employed, they will be terminated upon filing bankruptcy. While there are some situations where this may be the case, such as certain occupations requiring high levels of security clearance or certain finance positions, your filing will not be as much of a factor employment-wise as some people think.
Bankruptcy has become a more normal choice for people with debt issues and filings have risen dramatically over the last 12 years or so. It is not as uncommon or as harshly judged as it may have been in the past.
Q: Are the credit counseling requirements difficult to fill?
A: No, the credit counseling requirement is one of the easier parts of the bankruptcy. There are numerous companies that offer both credit counseling classes and the prices are affordable. In addition, the classes are offered on-line, which makes completing them much more simple for debtors.
The classes take a minimum of one hour and a maximum of two hours. Most companies email the certificate directly to your attorney upon completion or to the debtors directly if they are representing themselves. The classes are educational in nature and do not affect your bankruptcy case in any way outside of needing the certificate for the filing.
Any tests required to take in the class will not relate in any way to your actual case and the results will not be held against you. The first class is normally taken prior to filing and is good for six months. The second class, called Debtor Education, is taken after filing and is required to be taken before your case can close and your debts can be discharged.
Q: Should I make any significant life changes before filing bankruptcy?
A: Many debtors who do not consult an attorney make big life decisions prior to filing bankruptcy. Some examples include: getting married, moving to a new home, transferring a car out of their names, taking money out of their retirement account and making a big purchase.
There are numerous reasons why it would have been smarter for them to consult an attorney prior to doing this if they are in a bankruptcy situation, but the biggest reason is that these decisions can negatively affect their case. A newly married debtor might not qualify for Chapter 7 anymore depending on their spouse’s income; a new home could make it harder to file a Chapter 7; transferring a car out of their name could be considered fraudulent or just a bad decision that costs them later; taking money out of a retirement account before filing bankruptcy might torpedo a debtor’s chances of qualifying or put their newly acquired money in danger; and making a big purchase prior to bankruptcy might not look good to your bankruptcy trustee.
These are all situations that have occurred and could have been avoided had those debtors done one thing prior to making those decisions: consult a bankruptcy attorney. Consulting with an attorney doesn’t mean you have to file bankruptcy. What it does do is ensure you have your options laid out for you and you can ask questions about how certain decisions would affect you down the line if you decide to file.