Tag Archives: Life after bankruptcy

Bankruptcy Alphabet – L is for Life

Life after bankruptcy - what does it look like?

Frequently, I’ll meet with clients who are (understandably) worried about life after bankruptcy. How bad is the worst case scenario? Will I have to live without credit for 10 years? Will I ever be able to rent again? Get a car loan? How about a mortgage?

Clients often associate bankruptcy with being thrown out on the street, all of his or her assets taken away, and picture printed on the front page of the newspaper announcing to the world that he or she filed for bankruptcy. It’s so easy to think that you’ll be branded and you’ll have to wear a scarlet letter around your neck announcing to the world that you’ve filed.

I have news for you. Bankruptcy is about preservation of assets and discharge (forgiveness) of debt. Even though there are a lot of stereotypes and stigmas tied to bankruptcy, it is a perfectly legal and legitimate way for people (and businesses) to get out of overwhelming debt.

Shame, guilt and other emotions about debt

Some of the most common things I hear from my clients are:

I feel so guilty. I feel ashamed.
I am a responsible person.
I never thought I’d end up in this situation.

Being under crushing debt is emotionally draining, puts a lot of pressure on you, your marriage, and your family. (Not to mention, your wallet.) Debt brings up a lot of emotions, and whatever you feel - it’s perfectly normal!

After discharge, you’ll be able to continue to live your life - debt free. All of your future earnings or assets are yours to keep, free from creditors’ claims.

The downside of bankruptcy?

The bankruptcy will be reported on your credit report for up to 10 years. Despite popular belief, this does not mean you cannot acquire new credit for 10 years. Some of the negative impacts of bankruptcy start to diminish as your debt-to-income ratio is improved and your credit score begins to recover.

Most of our clients report being able to get new credit cards shortly after discharge, and in general, you can qualify for FHA mortgage after 2 years.

You may also experience difficulty trying to rent a new apartment immediately after bankruptcy. You can avoid this problem by moving prior to filing. In addition, many landlords will consider overlooking the bankruptcy if you increase your deposit or offer to pay for several months of rent up front. (Read more about renting after bankruptcy here.)

There will be adjustments and challenges. But the point of the fresh start principle that underlies bankruptcy is that there is life after bankruptcy.

Image credit: chrisinplymouth
[ois skin=”Schedule a Consultation”]

Rebuilding Your Credit After Bankruptcy

Written by San Mateo Bankruptcy Attorney, Jeena Cho

One of the biggest concerns my clients have before filing for bankruptcy is credit. I find that there is a major misconception in terms of how bankruptcy impacts your credit score, so let’s be clear on a few points.

Oftentimes, those filing for bankruptcy already have a relatively low credit score. The impact of late payments and robbing Peter to pay Paul as long as possible has already taken its toll. Seeing a bankruptcy on your credit report may make the creditors hesitant when it comes to giving you new credit but that doesn’t mean obtaining new credit is impossible.

While your bankruptcy filing will show on your credit report for up to 10 years, you can and should work to rebuild your credit score and should start doing so as soon as possible after your bankruptcy.

Paying on Your Retained Property or Non-Discharged Debt

One easy way to rebuild your credit is to faithfully make payments to any mortgage payments, or car payments – provided you chose to retain the home or the car. These timely payments should be reflected on your credit report and help to rebuild your credit. The same is true for any student loan payments.

Apply for Credit

Credit card debt may have been a problem in the past but applying for a credit card with a low limit may help you to rebuild your credit score. Use the card to make a small purchase you can pay off the same month – just enough time for the lender to report to the credit bureau. Remember, you don’t want to end up in debt again, so be careful about what you charge on your account.

You may find that the credit card offers you receive after bankruptcy are rather limiting. Many will ask for annual fees and secured credit card companies will ask you to make a deposit in the amount of your credit limit in order to open the account. Be sure to read the fine print. Many of these cards will charge you all sorts of fees for the privilege of having their card.

Installment or Automobile Loans

Installment loans, like those associated with car payments, are even better for rebuilding your credit if you can put down a 10 – 20% deposit and work within the confines of a high interest rate. Making timely payments on a sizeable installment loan will look even better than making payments on a small, often-revolving credit card balance.

Review Your Finances

You filed for bankruptcy for a reason. Don’t run out and apply for a credit card or loan before you know for sure you are ready to add additional payments to your budget. Some people file for bankruptcy, get rid of their debts, and still find themselves struggling financially. Bankruptcy isn’t a quick fix and you need to take your time as you reestablish your credit and your life.

Of course, you can’t work on rebuilding your credit until after your bankruptcy, so talking to a San Mateo bankruptcy attorney should be your first step. I would be happy to talk to you about the solutions most appropriate for your situation.

Photo Credit: James Jordan