Bankruptcy is a legal procedure, created to provide a fresh start to individuals burdened with unwieldy or unmanageable debt. Although bankruptcy can provide help in many instances for individuals in financial crisis, many individuals are skeptical about filing bankruptcy due to fears that are unwarranted or misunderstood.
Many people are worried about filling bankruptcy due to lack of knowledge of the effects of bankruptcy. I find clients are relieved of these concerns once they know how positively they will be affected by the process. Most individual’s fears in filing for bankruptcy are: 1) the fear of losing assets/property, 2) the negative effect on their future credit, and 3) concerns of the unknown involved in filing and reputation.
Fear of Losing Assets/Property
If you file for bankruptcy, you can rest assured in knowing that you won’t be left out on the street with nothing to your name other than your underwear. Most assets in a bankruptcy filing are exempt, and debtors rarely lose their assets or belongings due to valuable exemptions protecting their assets. Your attorney can explain what assets if any will be lost to pay creditor claims. Very rarely do debtors lose any assets. Assets protected from marshalling varies with Federal exemption law and state policy, but your private home, vehicles, and many other assets are typically safe from creditor claims.
Even the items that are not exempt, lenders are not interested in them because they are burdensome and expensive to dispose of. Most secured creditors want you to keep your vehicles and house (collateral) and they want you to continue to make payments on them. Your promise to keep secured debt is called reaffirmation and the decisions to keep those assets are yours, not the creditors. Keep valuable secured debt like vehicles and surrender the debt that exceeds the value of the collateral.
Fear of Negative Impact on your Credit
Filing for bankruptcy will actually improve your credit score and you will be able to keep your assets and rebuild your credit. Most debtors experience an increase of 50 to 100 points in their credit score by filing bankruptcy. The elimination of burdensome debt in bankruptcy makes you a better credit risk and your improved score reflects that fact. If you have judgment liens or tax liens, your creditors are leery of lending you money because they are fearful that those judgment creditors will garnish your wages, seize your bank accounts or repossess assets, all those creditor actions will make it more difficult for you to repay their debts. Although much of your outstanding credit will be written off through bankruptcy (student loans debt is normally not canceled through bankruptcy). This will give you a fresh start per se and you won’t have credit card debt or other monthly payments to worry about. Thus, you will be able to continue to increase your credit score and rebuild your credit. Your bankruptcy will not be published in the newspaper and no one will know of your filing unless you tell them.
It will take a year to rebuild your credit to a point where you have normal low interest rates, allowing you to buy a home, refinance your existing home, or buy a new car.
Here are a few recommendations to help rebuild your credit:
Avoid payday loans, interest rates are extremely excessive, and they bring down your credit score.
Live within your means, spend your money wisely and do not purchase luxury objects that are not a necessity. Save some money by making it part of your budget. Pay yourself something each month; savings will give you financial stability.
Open a new checking and/or savings account. Lenders will consider this a positive when figuring out if you are responsible enough to lend cash to.
Apply for a secured credit card and make payments on time. This will reflect positively on your credit score and assist you to begin a new and on-time payment history. Try not to get a card with an excessive deposit amount.
When applying for brand new credit, try to begin with a gas card or store credit card. These are usually cards that are easier to qualify for and can help rebuild your credit with a low monthly payment.
Pay all your credit card and utility bills on time!
Use a co-signer to qualify for loans and/or credit cards. This can help you get a lower interest rates and lower monthly payments
These few small suggestions will help you to reestablish your credit score. In one year you will have good credit and the ability to borrow money at lower interest rates. Let us explain the consequences of bankruptcy on your specific facts. At Mortimer Law Firm, we solve problems, your problems.