If you have recently filed for bankruptcy in North Carolina with the help of a North Carolina bankruptcy attorney, or if you are considering bankruptcy, it is not the end of the world, and with a bit of discipline and patience, you will be able to reestablish your credit after bankruptcy.
What does bankruptcy accomplish? How will it affect your credit, and what will it take to restore your credit after bankruptcy? If you will keep reading this brief discussion of bankruptcy and credit, you will learn the answers to these questions.
But if you’re personally facing overwhelming debts, and if you are not able to pay those debts, you should also arrange – right now – to consult with a North Carolina bankruptcy lawyer to discuss bankruptcy and your other options for getting out of debt.
What Does Bankruptcy Accomplish?
Bankruptcy can immediately stop collection activities, eliminate your unsecured debt, and provide you with the opportunity to reorganize your finances and catch up on your mortgage or car loan payments.
Bankruptcy immediately protects you from foreclosure, repossessions, creditor lawsuits, and collection agency harassment, but you must be guided through the process by a North Carolina bankruptcy attorney.
Without that guidance, any mistakes you make in the bankruptcy process could delay the process or cost you dearly.
What is a “Chapter 7” Bankruptcy?
Unsecured debts – credit card debt medical bills and some taxes, for example – are discharged (erased) by a Chapter 7 personal bankruptcy, but other debts (for some taxes, alimony, child support, and criminal or civil fines) cannot be discharged in the bankruptcy process.
When you file for a Chapter 7 bankruptcy, items of your property may be sold off to pay some of your debts, but the law allows most people to keep particular items including most of your personal property, vehicle and home through exemptions. Passing a means test based on household income and household size in the County you reside is a requirement to qualify for a Chapter 7 bankruptcy.
What is a “Chapter 13” Bankruptcy?
However, no means test is required to qualify for a Chapter 13 bankruptcy. When you file a Chapter 13 bankruptcy, you will receive the same protection from foreclosure, repossession, creditor lawsuits, and collection activity that a Chapter 7 bankruptcy offers.
However, in a Chapter 13 bankruptcy, you will prepare – with your lawyer’s help – a detailed plan to pay certain debts such as catching up on missed home or vehicle payments and taxes that may not be discharged. Depending upon your income and property the plan may require you to pay nothing to your unsecured creditors or some portion of the unsecured debt. Any unsecured debt not required to be paid will be discharged (erased). The Ch 13 plan will be 36-60 months depending upon your income.
Is Bankruptcy Right for You?
Bankruptcy isn’t for everyone. Speaking candidly, bankruptcy is a last-resort option, and if you are struggling with debt, you may have alternatives to bankruptcy. Before you file for bankruptcy, discuss those alternatives with a North Carolina bankruptcy lawyer.
Bankruptcy provides a second opportunity to those who have debts that they can’t possibly pay. Over time, filing for bankruptcy can be advantageous, but only if you plan properly and commit yourself to taking full advantage of the opportunity that bankruptcy provides.
What Happens to Your Credit Score When You File for Bankruptcy?
Reestablishing your finances and credit rating after bankruptcy may be a challenge, but with discipline and patience, you can rebuild your credit and reestablish your finances after bankruptcy.
The precise effects of a bankruptcy will depend on several factors, but in most cases, a bankruptcy filing can reduce a credit score of 700 or higher by 200 or more points. If your credit score is somewhat lower, in the 680 range, you will probably lose from 130 to 150 points.
Credit bureaus show a Chapter 13 bankruptcy on your credit report for up to seven years and a Chapter 7 bankruptcy for up to ten years. You make no repayments in a Chapter 7 bankruptcy, so it has a somewhat more negative impact on your credit score than a Chapter 13 bankruptcy.
What Should You Do After Your Bankruptcy?
Making regular debt payments such as house payments, car payments, lease payments, etc… is the best path to a better credit score, but you can take steps toward raising your credit score immediately after the bankruptcy process is complete. Your score won’t be higher right away, but if you practice good credit habits, it will not take long.
After the bankruptcy process is concluded, obtain copies of your credit report from the three main credit bureaus: Experian, Equifax, and Transunion. Meticulously scrutinize each credit report to ensure its accuracy.
Your credit score may be low after your bankruptcy, but you can probably still obtain some types of credit. Your best option may be to obtain a secured credit card through your bank.
Make small, regular purchases with that card, and pay for those purchases in full each month. Over time, the proper use of a secured credit card can help you improve your credit score and prove to lenders that you are handling credit responsibly.
What Else Can Raise Your Credit Score?
A small installment loan – like a car loan or a personal loan – obtained with a co-signers agreement can also help you rebuild your credit, provided that you make the payments on time and in full each month.
After a bankruptcy, vigilance about your spending is imperative. Even if you’ve never prepared or followed a budget, you’ll need to start. A budget can help you avoid unnecessary debt and manage your cash flow.
After you obtain new credit, spend within your means. Only incur a debt that you will be able to pay off responsibly. Keep track of your credit card use and obtain regular credit reports. After the bankruptcy process is complete, it is only a matter of time before you can reestablish your credit.
You may even qualify for a home mortgage after about three years, although your interest rate may be somewhat high and you should expect to make a larger-than-usual down payment.
You may qualify for a vehicle loan within 6 months following a Ch 7 bankruptcy.
You may also qualify for a home loan or vehicle loan while in a Ch 13 bankruptcy.
When Should You Contact a Bankruptcy Attorney?
You have been reading a general discussion of bankruptcy and credit, but if you are currently feeling overwhelmed by a mountain of debt that you cannot pay, you are going to need personalized legal advice from an attorney who routinely handles bankruptcy filings.
Your attorney will review your financial circumstances, help you consider alternatives to bankruptcy, and ensure that your legal paperwork is accurate and complete when you submit it to the bankruptcy court.
Not only is there life after bankruptcy, but if you are willing to work for it, there can be prosperity, good credit, and even home ownership. A good bankruptcy lawyer will help you resolve your debts and will help you move positively and constructively into the future.