The economy has forced many people to make tough financial decisions, and when it seems like there is no other choice people turn to bankruptcy for relief. The choice to file for bankruptcy is a difficult one, but it can often help people get back on their feet and obtain a fresh start.
Generally there are two forms of bankruptcy available to individuals. The first, Chapter 7, allows applicants to pay down debt by liquidating their property. Proceeds from the liquidation process are distributed to creditors by the bankruptcy trustee. Certain property like equity in the applicant's house might be exempt from the liquidation process.
The second form is Chapter 13 bankruptcy, which is also known as the "wage earner's plan." Chapter 13 bankruptcy requires an applicant to have sufficient regular income to repay their creditors over a three to five year repayment plan, and does not require liquidating any of a debtor's assets.
Reestablishing a Credit Score
Many people fear bankruptcy because they believe the decision will haunt them for the rest of their lives. Recovery from bankruptcy is possible and can happen sooner than many people think.
A Chapter 7 bankruptcy remains on a credit report for 10 years from the date of filing and a Chapter 13 bankruptcy appears on a credit report for seven years. The declaration of bankruptcy does not make it impossible to receive a loan again, but individuals who successfully file will likely have to disclose past bankruptcies.
A harder challenge than receiving a loan is receiving a loan with suitable terms. People who have gone through bankruptcy do not want to agree to loan terms with high interest rates that make it hard to make timely payments.
Fortunately, individuals who go through bankruptcy can re-establish credit by making regular payments on a secured credit card with a low spend limit. Secured credit cards require a deposit, but are generally easier to obtain than traditional cards. Creditors keep track of the payment history of people who have gone through bankruptcy for a handful of years. The key is to stay on top of payments post-bankruptcy.
Auto and mortgage loans are still achievable after bankruptcy. The ability to gain a car loan is possible after a handful of months have passed. A traditional bank may not be ready to make an offer but dealership financing is a strong possibility. To obtain a loan for a mortgage, an applicant who has gone through bankruptcy will need a minimum of two years of good credit history.
If you are thinking about bankruptcy and are worried about your financial life afterward, contact an experienced bankruptcy attorney to discuss your legal options.
