Consequences of Filing Bankruptcy

There are several effects of filing bankruptcy.

  1. A fresh start. The Bankruptcy Code tells us that bankruptcy is meant to provide a “fresh start” to people who have fallen on hard times, or gotten into financial difficulties. Bankruptcy will allow you to get one with your life, without an unmanageable burden. It will stop garnishments, foreclosures, repossessions, harassing phone calls, and hopeless lawsuits.
  2. Credit Report. The fact that you filed bankruptcy will remain on your credit report for up to 10 years. Bad credit will remain on your credit report for only seven years, but some creditors try to “re-age” bad credit, to start that seven-year period running, all over again. As such, bad credit could remain on your credit report for decades. Filing bankruptcy gives you a “fresh start.”
  3. Future Credit. I cannot make you any guarantees about what the future holds, but I have had over 3,000 clients who have filed bankruptcy. In many instances, they have been able to go out and quickly re-establish credit. (In a few instances, they have had to return to me the following year to file Chapter 13 because they have run up even more credit cards).In the future, people will judge you based on your job, your savings, and any collateral you may have. That is how the credit industry is supposed to act, but deregulation in the 1980’s destroyed the concept of responsible lending.What about a car, or a house? You know, more than 1.7 million bankruptcies were filed, last year. Tens of millions of people have filed bankruptcy in the past 20 years. The very rich who do not need loans do not usually file bankruptcy. The very poor who cannot get loans do not bother filing bankruptcy. Basically, it’s that 80% in the middle who have to file bankruptcy. And lenders know this. If they stopped lending to everyone who filed bankruptcy, they would be out of business.

    For motor vehicles, I urge former clients to talk to their credit union. They usually have the best deals, but sometimes the dealers are anxious to sell a new car and may be able to give you something better.

    For homes, the reputable bankers I have talked to in the area have told me, “Just have your clients wait two, or three years. At that point, we can consider them.” You may also want to consider alternative financing like buying on contract. There are an awful lot of houses “for sale by owner”, these days. There are sellers just as desperate to sell their homes as you are to buy their homes!

  4. Chapter 7 vs. Chapter 13. I am going to be honest with you: I cannot promise you that one is better than the other, even though in a Chapter 13, you pay back part, or all of your debt. If you file Chapter 13, that fact and the percentage being repaid to your unsecured creditors IS listed in your credit report. I have had lenders who have told me that they do take Chapter 13 repayments into account. Chapter 13 trustees have offered to serve as credit references to debtors who faithfully complete their plans. But I have also had lenders who have simply told me that it does not matter, to them. Future credit should not be a significant factor in determining which Chapter to file under.
  5. Repossessions, Foreclosures, and Garnishments vs. a “Clean Kill”. Look: sometimes, it’s just “six one way, half a dozen the other”. If you have garnishments, foreclosures, and repossessions on your credit report, that will hurt you just as bad, or worse, than a bankruptcy. Filing bankruptcy gives you that “fresh start” that you need to begin to repair the damage and move on with your life.
  6. Co-signors. The fact that YOU filed bankruptcy should NOT show up on your co-signors’ credit reports. If it does, please see me. This is against the law, and I can help.

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