Life After Bankruptcy

Bankruptcy can provide a fresh start and offer many benefits to filers. However, it is also a life event that can have ripple effects far into the future. For a period of time after filing for bankruptcy, you might not be able to get a loan. You may have trouble getting a credit card. Your credit rating will be affected, with the bankruptcy staying on your record for 7-10 years. However, with time, it will eventually also start getting easier to get credit, since you will be ‘debt free.’ This means you will have an improved debt to equity ratio, which in turn means that creditors will be more willing to lend you money. The reason is that, generally speaking, the less debt you have, the more able and willing you are to pay your debt(s).

Whether you've filed Chapter 7 or 13, you may have to make certain lifestyle alterations to keep the benefits of filing bankruptcy. Los Angeles bankruptcy attorney Devin Sawdayi can help you file and give you advice about making the most of your fresh start.

Choosing to File Bankruptcy

If you have found yourself overwhelmed by bills and unable to make progress, bankruptcy may be an option for you. The most common kinds of bankruptcy for individuals are Chapter 7 bankruptcy and Chapter 13 bankruptcy.

If you file under Chapter 7, typically this will lead to a relatively swift elimination of all dischargeable debts (which generally does not include things like student loans). Under California law, debtors have a choice between two systems of exemptions – one that is more beneficial to homeowners, and another that may be more beneficial to people with child support or alimony obligations. In either case, to qualify for Chapter 7 bankruptcy to begin with, you must pass a “means test” that determines whether your income is low enough for you to be in this category.

If you have enough income to potentially satisfy creditors by reorganizing your debt and paying it back on a strict schedule, Chapter 13 may be your best option. Unlike in a Chapter 7 case, this will not necessarily be a means of wiping out all of your debt, but could be a good way of protecting a home from foreclosure or preventing vehicle repossession. Generally speaking, a Chapter 13 will eliminate a large portion of your debt, if not all your debt. It is a fact specific, case by case determination which depends on such factors as your income, your expenses, your assets, etc. In a Chapter 13 case, an impartial trustee will administer your finances, and you will be put on a plan, typically ranging from 3 to 5 years, for repaying the debts at issue. The bankruptcy court must approve this plan. Once the debts are repaid, the court will enter an order discharging them.

Changing Your Lifestyle

If your debts have been discharged through Chapter 7 bankruptcy, or you're paying off your debts in a Chapter 13 bankruptcy, you should change your lifestyle to ensure your finances stay on track. You may need to change basic things like how much you spend on rent or what leisure activities you enjoy. You may also need to attend credit counseling if you haven't already done so in order to plan for a Chapter 13 bankruptcy.

Credit counselors can help you learn how to live within your means. Over time, frugality can become a habit as deeply rooted as any poor spending habits you had before bankruptcy. Although it can be frustrating to set strict limits, it is critical that you develop a reasonable budget if you want to make sure that you do not have to face financial troubles again. Credit counselors can help you set reasonable spending goals in light of your income. You should also start an emergency fund and set up automatic bill payments to make sure all your payments in the future are timely.

How to Develop Good Credit After Bankruptcy

Repaying the bills you incur promptly and in full is a critical first step towards rebuilding your credit. You need to start rebuilding good credit as soon as you receive your bankruptcy discharge.

One strategy to rebuilding credit is to obtain a secured credit card from a bank or credit union about one year after your discharge. A secured credit card requires you to deposit a certain amount of money into an account. The amount you deposit is the credit card limit. Assuming you repay your debt as agreed, making at least your monthly minimum payments, but preferably paying the full balance on your card, you eventually rebuild your credit. Some credit card companies reward borrowers' good financial behavior after one year by issuing a credit card that is not secured. However, you should be cautious about secured credit cards that charge significant fees or appear to be provided by entities that are otherwise untrustworthy.

Since certain debts, like student loans and alimony, are usually not discharged through bankruptcy, it's important to continue to make timely payments on those debts. Accruing a history of timely payments in all areas of spending will help your credit history over time.

Another important step to rebuilding good credit is to make sure that your credit report doesn't contain errors. You should carefully review your credit report after bankruptcy and file formal disputes for any errors you find.

Experienced Bankruptcy Counsel

Although it can be difficult to rebuild your credit after bankruptcy, it is important to maintain an optimistic outlook. There may be setbacks, but there will also be successes. Many myths surround bankruptcy, including some harmful myths about how difficult life is after bankruptcy. A trustworthy Los Angeles bankruptcy lawyer can help you sort out fact from fiction, file your bankruptcy petition, and give you sound strategies for rebuilding your financial life. You can contact Devin Sawdayi at 310-475-9399 or via our online form for help.