Bankruptcy allows consumers a way out of debt, but it’s important to remember that there are repercussions that can ruin people’s credit as well as put consumers at risk of losing their property. This begs the question, is anyone able to truly rebuild after filing for bankruptcy? Below we discuss what can be seized, what’s exempt, and specific Arizona exemptions. As always, you’ll want to discuss your options with a phoenix chapter 7 bankruptcy lawyer.
Are You Truly Able to Rebuild?
The rebuilding process will be determined by what form of bankruptcy you are filing. A phoenix chapter 7 bankruptcy lawyer will be able to review these further with you, but the most common types of bankruptcy for individuals: chapter 7 and chapter 13:
- A chapter 7 bankruptcy liquidates all non-exempt assets to pay off the debt you owe to creditors. This is typically considered the best option when you have little income and a large amount of unsecured debt. Unsecured debt includes: medical bills and credit cards.
- A chapter 13 bankruptcy reorganizes debt and establishes a repayment plan to pay debt owed to creditors. This is considered the best option for debtors that have income, but are needing some breathing room to be able to catch up on outstanding debts.
Credit After Bankruptcy
If you file for either type of bankruptcy, you can almost always expect your credit score to be lowered. But sometimes the best thing you can do for your credit score is file bankruptcy. Here’s why: If you’ve been unable to keep up with payments, it’s possible that your credit score has already been damaged. Missing mortgage payments, car payments, credit card payments, or payments on other bills impacts your credit. So while filing for bankruptcy might lower your credit score, you should weigh this against how bad your credit is looking after falling behind on payments.
A discharged bankruptcy will also allow you to rebuild your credit by creating a chance for you to have positive activity. Positive credit payments are when you pay your bills on time and are able to pay your bills. One of the greatest benefits of bankruptcy is clearing out your debt so you can start fresh.
A bankruptcy lawyer can help you determine the best course of action, whether it be filing for bankruptcy, or not, after reviewing your individual circumstances.
After you have filed for bankruptcy and been through the process, and your debts have been discharged it’s important to remember that there are ways to improve your credit score. This process can be started within six months to a year after the discharge is complete. These days, lenders tend to look more at credit scores than the comments that are on a credit report. This means that if you are actively working on rebuilding your credit, a lender will take that into account.
One first step is to review all of your credit reports, and often, to verify that all the information is correct and up to date. Stay on top of your credit reports, and as soon as the debt is discharged make sure it is reported. You can also contact a credit bureau to ensure that discharged debts do not show up as current debts.
You can also obtain a secured credit card that requires collateral, such as a cash deposit or savings account. If you are able to make payments in a timely fashion, a credit card will usually drop the requirement for collateral. This allows you to prove that you are capable of paying back debt in a timely fashion.
A Checklist for How to Rebuild Credit:
- Pay your bills on time!
- Regularly review your credit report
- Acquire a secure credit card and make payments on time
- Open a savings account and use it
- Live within your means and set a budget.
Working with a bankruptcy attorney can help you get back on your feet, especially if you are dealing with large amounts of debt that might not be discharged. Often times this means declaring bankruptcy on the debts that can be discharged so that you can pay down what cannot be.
Pros of Filing Bankruptcy
One immediate advantage that helps debtors when they file for bankruptcy is the “automatic stay.” This motion alerts creditors that they must stop their efforts to collect money from debtors. This stay is what stops creditors from calling you! Under an automatic stay, creditors are not allowed to call, send collection letters, file lawsuits, garnish wages, or seize assets, except for in specific situations such as the collection of alimony and child support payments.
The biggest “pro” of filing bankruptcy is that a court discharges your debts. That means that certain debts will not need to be repaid. This, of course, is dependent on the form of bankruptcy you file: either chapter 7 or chapter 13.
Cons of Filing Bankruptcy
One “con” of bankruptcy is that while it will discharge most debt, it does not discharge certain debt, such as mortgages, student loans, taxes, alimony, or child support. While student loan debt has been forgiven in extreme cases, for the most part, it is never discharged in bankruptcy. Additionally, a debtor can lose certain nonexempt property in a bankruptcy filing because a court orders it to be sold.
Bankruptcy will also have an affect on your credit score. While your credit might already be low because of delinquent payments, once a bankruptcy is filed, it’s required by the national credit reporting agencies that it appears on your credit report. A chapter 7 bankruptcy will stay on your credit report for 10 years and a chapter 13 will stay for 7 years.
The impact on your credit can hurt your future ability to qualify for a future loan or credit card. It might also affect your ability to be hired or secure living arrangements. Some employers and future landlords evaluate a persons credit score to determine if they are good candidates.
Working with a Bankruptcy Attorney
Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix chapter 7 bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.
668 N. 44th St., Ste 320, Phoenix, AZ 85008