It seems like you\u2019re drowning in debt. Until now, if you\u2019ve been a little
\nshort, you\u2019ve just borrowed money to pay that last bill. Now you are nearing or
\nexceeding your credit limits, and you can\u2019t get the money to satisfy all of your
\ncreditors. Maybe you\u2019ve received polite calls about when you intend to pay, or
\nmaybe one or two have threatened to refer their debt to collections, file lawsuits,
\nrepossess collateral, or foreclose. If you pay the most aggressive creditor, you
\nmight not have enough money left to pay the other ones that you can handle, or even
\nhave enough to pay for the roof over your head, for your ride to work, the insurance,
\nthe utilities, or even the grocery bills. Is this your situation?<\/p>\n
Everyone needs credit to buy and keep cars and houses, and people also rely To understand the effect of bankruptcy on credit, you need to know how For one reason or another, at some point paying your bills on time may not There are two types of consumer bankruptcy, Chapter 7<\/a> and Chapter 13<\/a>. Chapter 7 will wipe out general unsecured debt. If you can afford to keep Chapter 13 is a court-protected reorganization plan that can take up to five After filing Chapter 13, a Debtor may not incur additional consumer credit Filing Chapter 7 is not a legal impairment to using credit. Whether a lender is Filing bankruptcy is not a financial alternative that people choose if they have
\non credit to get out of debt trouble. Credit cards, loans, and family members can be
\na source of credit. Nobody wants to hurt their credit. People with good credit say
\nthat filing bankruptcy<\/a> will destroy your credit, which is a reason why most people
\ndon\u2019t consider bankruptcy until after they\u2019ve tried everything else first. The truth is
\nthat in some situations, filing bankruptcy is a cost-effective option that opens doors
\nthat are closing, and it can be a life saver.<\/p>\n
\ncredit scores are calculated. At the margins, the three credit reporting agencies
\nconsider many complicated factors to fine tune their scoring. However, as a
\npractical matter, there are two factors that influence your credit score more than all
\nthe others combined: 1) your credit history, that is, whether you are paying your
\ndebt on time, and 2) your credit utilization ratio, that is, how much of your
\navailable credit is left. Slow payments and maxing out credit hurts the score.<\/p>\n
\nbe an option that is available to you. You can be caught in a downward spiral. If
\nbills become delinquent, that alone hurts your credit, and delinquencies can lead to
\ngarnishments, repossessions, and foreclosures which hurt your credit severely if the
\ndebt collection process goes that far. If your credit is not good enough to allow you
\nto borrow your way out of trouble, then maybe it is time to consider the benefits of
\nfiling for bankruptcy.<\/p>\n
\nWhen you file either one, the protection of the Bankruptcy Court is instantaneous,
\nso that state collection actions are automatically suspended until the legal process
\nhas time to work itself through. Since state collection actions like lawsuits damage
\ncredit scores, avoiding those actions helps credit.<\/p>\n
\npaying for secured debt, like houses and cars, you can usually keep those things in
\nChapter 7. As for credit, wiping out debt in Chapter 7 actually improves your \u201cdebt
\nutilization ratios\u201d, because after some of your debt is wiped out (\u201cdischarged\u201d), a
\ngreater percentage of your income will be available to pay the debt that remains.
\nAlmost all people who file for Chapter 7 will receive a discharge within three or
\nfour months, with very little going on in the meantime.<\/p>\n
\nyears to complete. In Chapter 13 you can force secured creditors like mortgage
\nlenders or auto lenders to allow you to cure defaults over time whether the creditor
\nwants to work with you or not. It is also possible in some plans to pay little or
\nnothing on unsecured debt, which can make Chapter 13 plan payments much more
\naffordable.<\/p>\n
\nwithout first seeking court permission. Although approval is not automatic,
\nreasonable proposals to refinance or buy houses or cars can be, and usually are,
\naccomplished by filing a motion with the court. The first step is to talk to the
\nbankruptcy lawyer for advice about finding an appropriate lender.<\/p>\n
\nwilling to lend is a separate question, and it varies by lender. After bankruptcy,
\ncredit applications just keep coming anyway, and the best decision may be to turn
\nthem down. You may buy cars before your discharge, and some lenders are
\nspecifically set up to lend to bankruptcy debtors. To get a government backed
\nmortgage, you need to wait about two years after a discharge. However, there are
\nno time limits imposed by law, and conventional lenders may not require any such
\ntime restriction. In any event, according to a 2019 study by the U.S. government\u2019s
\nConsumer Financial Protection Bureau, median credit scores increase steadily from
\nyear to year after filing a bankruptcy petition.<\/p>\n
\nbetter options. However, financial recovery without it may be next to impossible,
\nand financial recovery with it is certainly possible. Every case is different. Call us
\nat 770-683-3303<\/strong> to discuss your unique situation.
\n