What Positive Outcomes Do Clients See After Filing For Bankruptcy?

---

The most important outcome after deciding to declare bankruptcy is simply peace of mind. Most of the individuals that we work with are coming to us at a point of great stress. They’re usually receiving a lot of phone calls and dealing with a lot of court correspondence, which may not make sense. The bankruptcy really has the ability to take all of those challenges and find a resolution. Oftentimes, that means eliminating the underlying debt in order to discontinue the phone calls or finding manageable ways of controlling the debt. There is also the objective side of that, which is just truly reformatting a bankruptcy filer’s personal balance sheet. That involves taking a lot of the obligation on the bad side of the scale and looking at it in a way that is going to be much more manageable. However, it’s important to note that not all debts can be discharged through bankruptcy, meaning some financial obligations may remain even after the process is complete.

Understanding Bankruptcy

Bankruptcy is a legal process designed to help individuals and businesses either eliminate or restructure their debts. It provides a fresh start for those who are struggling with financial difficulties, offering a way to regain control over their finances. The bankruptcy process involves filing a petition in bankruptcy court, where a judge and court trustee review the financial situation and determine the best course of action. This might include liquidating assets to pay off creditors or creating a repayment plan. Understanding the bankruptcy process and its implications is crucial before making a decision, as it can have long-term effects on your financial health and credit report.

Credit Score Recovery After Bankruptcy

For How Many Years Does A Bankruptcy Stay On Someone’s Credit Score?

A bankruptcy can stay on a credit report for up to 10 years, but I want to demystify the idea that a credit score is totally in the garbage for the entirety of that 10-year period. That’s just not true. A credit score and a credit report is a compilation of a lot of information. It’s the total amount of debt that you have, your payment history and other public record information. Most of our clients are coming to us with troubled credit to begin with. Bankruptcy clears the field so that bankruptcy filers can start fresh. It allows them to create new, positive information on their credit report and rehabilitate relatively rapidly.

How Does A Bankruptcy Impact A Person Or A Company’s Credit Score?

In isolation, a bankruptcy does have a negative impact on credit. But contextually, most people who file bankruptcy have troubled credit to begin with. The actual numerical impact of the bankruptcy will vary, so the general rule of thumb is that the higher a credit score starts off, the greater the numerical impact of any one event. Conversely, if someone has a relatively impaired credit score (which bankruptcy filers often do), then bankruptcy isn’t going to have as much of a numerical impact. But again, the broader picture is that bankruptcy clears the field so that a filer is in a position where they can rebuild their credit score relatively quickly.

How Many Years Would It Take Someone To Rebuild Their Credit Score After A Bankruptcy?

A typical bankruptcy filer could have a stronger credit score than when they started within two years of filing for bankruptcy. However, there are a couple of points that need to be made on that topic. First, there are things that can be done to proactively allow for more progressive credit rebuilding. One of those things is to review your credit report after the discharge has been entered to ensure that all of the old debts are correctly reported. The second component is to look for opportunities to create positive information on the credit report. For example, if someone has reaffirmed a vehicle loan within the bankruptcy, then you’re going to see payments on the vehicle that will reflect on the credit report after the bankruptcy is complete. Alternatively, filers could take out what’s called a secured credit card, which is a credit card that requires you to first put down a deposit. That ensures that the credit card is paid off in full every single month that it is being used. That will create for positive credit history after the bankruptcy is complete and allow for the credit score to increase relatively quickly.

Will I Have To Pay Any Sort Of Income Tax On Debt Discharged In The Bankruptcy?

While I have to caution that we don’t provide tax advice, a discharged debt (a debt that’s eliminated through bankruptcy) is treated differently than debt that is written off or debt for which a lender may issue a 1099. Typically, discharged debt does not create a taxable event. A consumer should consult with their tax profession on the impact of debt relief options on their tax liability. It’s also important to understand that certain tax debts, especially recent ones, cannot be discharged through bankruptcy, which means they will still need to be addressed separately.

How Long Does It Take Someone To Qualify as A Mortgage After A Bankruptcy?

The mortgage qualification is really in the hands of the lender, but there are many lenders and/or loans, such as Fannie Mae and VA loans, that will not offer lending for at least two years after a bankruptcy.

Will A Bankruptcy Impact Any Job Opportunities?

Although it is illegal for employers to discriminate on employability based on bankruptcy, there are some specific industries in which bankruptcy may have an impact. In some circumstances, bankruptcy filing may have an impact on security clearances or various financial certifications, and it may impact other specific industries as well.

For more information on Positive Outcomes After Bankruptcy, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.

Immediate Relief from Credit Card Debt Collection

Filing for bankruptcy can provide immediate relief from relentless debt collection efforts. The moment you file for bankruptcy, an automatic stay is triggered, which halts all collection actions. This means creditors must stop making phone calls and sending collection letters. Additionally, the automatic stay can temporarily halt car repossessions, evictions, home foreclosures, debt lawsuits, and wage garnishments. This legal protection offers a much-needed break from the stress and pressure of dealing with aggressive debt collectors, allowing you to focus on your financial recovery.

While the automatic stay can provide temporary relief from most collection actions, it’s important to note that federal student loans are generally not dischargeable in bankruptcy, although recent changes have made it easier to discharge them under certain conditions.

Stopping Wage Garnishment and Lawsuits

One of the immediate benefits of filing for bankruptcy is the automatic stay, a powerful legal provision that halts wage garnishment and lawsuits. Once you file for bankruptcy, creditors are legally required to stop all collection activities, including phone calls, letters, and legal actions. This means that wage garnishments, where a portion of your paycheck is taken to repay debts, will cease. Additionally, the automatic stay can temporarily stop foreclosure proceedings, auto repossessions, and other property seizures. This provides a much-needed respite from financial pressure, allowing you to focus on your bankruptcy case and work towards a more stable financial future.

Debt Elimination and Restructuring through Bankruptcy Filing

Bankruptcy offers a fresh start by either eliminating or restructuring your debts. Chapter 7 bankruptcy can wipe out eligible unsecured debts, such as credit card debt, medical bills, and personal loans, giving you a clean slate. On the other hand, Chapter 13 bankruptcy reorganizes your debt into a manageable repayment plan. Over the course of the repayment period, you make monthly payments to repay creditors, and any remaining debt is discharged at the end. This structured approach can help you regain control over your finances and work towards a debt-free future.

Protection of Assets

Filing for bankruptcy doesn’t mean you’ll lose all your belongings. Many assets are protected by federal or state exemption laws. For instance, federal exemptions allow you to retain up to $4,450 in equity for your vehicle. Chapter 13 bankruptcy, in particular, can protect your assets since it involves repaying creditors a portion of what you owe through a structured repayment plan. This means you can keep essential assets like your home and car, providing peace of mind and stability during the bankruptcy process.

Long-term Financial Benefits

Bankruptcy can offer significant long-term financial benefits by providing a fresh start and eliminating overwhelming debt. By freeing up your income from debt obligations, you can better manage your monthly payments for basic necessities and work towards rebuilding your financial stability. The sense of relief and new beginning that comes with bankruptcy can reduce stress and provide a clearer path to a secure financial future. Additionally, the process of filing bankruptcy can help you develop better financial habits and a more sustainable approach to managing your finances, ensuring long-term stability and peace of mind.

Managing Personal Finances

Effective personal finance management is key to avoiding debt and financial difficulties. Here are some practical tips to help you manage your finances more effectively:

• Create a Budget: Track your income and expenses to understand where your money is going. This will help you identify areas where you can cut back and save.

• Prioritize Needs Over Wants: Distinguish between essential expenses, like housing and groceries, and discretionary spending, such as dining out and entertainment.

• Build an Emergency Fund: Aim to save three to six months’ worth of living expenses to cover unexpected events, such as medical emergencies or job loss.

• Pay Off High-Interest Debt: Focus on paying off high-interest debts, such as credit card balances, as quickly as possible to reduce the amount of interest you pay over time.

• Monitor Credit Reports: Regularly check your credit reports to ensure they are accurate and up-to-date. This can help you catch and correct any errors that might negatively impact your credit score.

Alternatives to Bankruptcy

Before deciding to file for bankruptcy, it’s important to explore alternative options that might better suit your financial situation. Here are some alternatives to consider:

• Debt Consolidation: Combine multiple debts into a single loan with a lower interest rate and a single monthly payment. This can simplify your finances and potentially save you money on interest.

• Debt Management Plan: Work with a credit counselor to create a plan to pay off your debts over time. This often involves negotiating lower interest rates and monthly payments with your creditors.

• Credit Counseling: Seek advice from a credit counselor to help you manage your debt and improve your financial literacy. They can provide personalized guidance and support.

• Debt Settlement: Negotiate with your creditors to reduce the amount you owe. This can be a viable option if you have a lump sum of money available to settle your debts.

• Secured Credit Card: Use a secured credit card to rebuild your credit. This type of card requires a deposit, which serves as your credit limit, and can help you establish a positive payment history.

Conclusion: Is Bankruptcy the Right Choice for You?

Deciding whether to file for bankruptcy is a serious decision that should not be taken lightly. While bankruptcy can provide a fresh start and relief from overwhelming debt, it also has long-term implications for your credit report and financial well-being. Before making a decision, consider the following:

• Have you explored alternative options, such as debt consolidation and credit counseling?

• Do you have a clear understanding of the bankruptcy process and its implications?

• Are you prepared for the potential consequences of bankruptcy, including damage to your credit score and potential loss of assets?

If you’re still unsure, consider consulting with a financial advisor or bankruptcy attorney to determine the best course of action for your unique situation. They can provide personalized advice and help you navigate the complexities of the bankruptcy process, ensuring that you make an informed decision that aligns with your financial goals.