Life After Bankruptcy: What's Next?
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Toronto Bankruptcy Trustee Having to file for bankruptcy is something we all hope we never have to do in our lifetimes. Whether you file for Chapter 13 or Chapter 7, there are repercussions to going through this process. However, like with other setbacks in life, you can recover. There may be different paths to recovery for each form of bankruptcy, but there is always hope!
You may have done everything you can to avoid bankruptcy but those sweet 0% interest credit cards may have gotten the better of you. Or your health or unemployment issues may have taken center stage in recent years, and you were left with no recourse but to declare bankruptcy. When considering your financial future following such an event, you can expect that trying to secure credit for the next 3 to 5 years is going to be tough. Also, you can expect this negative mark to appear on your credit report for the official length of time of 10 years; although sometimes you may get lucky and the time can be reduced to 7-8 years. For those who need to weigh their options further, check out How You Know When It's Time For Bankruptcy.
Bankruptcy And Your Credit History
It’s legal for creditors to keep financial events on your report for 10 years, but that’s not a hard and fast rule. So how does bankruptcy actually affect your credit? It does so by lowering your credit score by 200 +/- points — usually because of late payments on accounts and not just because you filed for bankruptcy. If you find yourself becoming overwhelmed by payments, then this is an ominous sign. This is one symptom that can eventually lead to serious financial consequences for you if you fail to make any changes about your situation.
Now the good news: if during the bankruptcy proceedings, you decide to reaffirm or keep some of your debt and you continue to take responsibility for these loans (e.g. your car loans or house mortgage), then you may have a shot here (to some degree) to preserve your credit score and future credit worth in the eyes of lenders.
Additionally, there will be credit card companies (yes, they are out there) that will solicit you after the bankruptcy. You'll be debt free after all, right? You should certainly be cautious and wary, although you may think of this as a second opportunity to do things the right way. While taking on new credit and applying for a secured credit card can be a way to rebuild your credit history, you'll have to evaluate just how responsible you can be with handling debt all over again. You'll need to tread down this road very carefully because if caution is not heeded, your actions could lead you back down the same path towards bankruptcy. Here's more on how to build good credit (and clean up your bad history).
Bankruptcy And Your Living Situation
For those who have gone through bankruptcy, you may wonder just how your living situation may become affected. If you're a prospective tenant, you may be surprised to know that in many cases, landlords who own individual homes will be open to considering your application: after all, you've got no debt after you've filed for bankruptcy, and you're eager to build up your finances. Your living expenses and rent are surely a high priority for you. On the other hand, you may find it more difficult to deal with some large apartment complexes and management companies that frown upon those with a record. At any rate, you're likely to still find housing, and things may not be as bad as you thought it would be.
Now if you’re a homeowner, reaffirming your mortgage is the sole way to keep your home. Let’s consider the advantages of this move. The most obvious benefit is that you get to keep your home! This helps your credit and puts a roof over your head while keeping your bank or lender happy. But if you do decide to include your mortgage in the bankruptcy, you’ll be handing your home back to the bank and walking away. If you aren’t a homeowner yet, keep in mind that you can get approved for an FHA (HUD insured government loan) mortgage after two years from the date you are discharged from bankruptcy.
Bankruptcy And Your Financial Future
Do keep in mind that you'll need to continue making payments if you have other credit lines, and that you'll need to keep an eagle eye on your credit score. What most people may not realize is that this is precisely what credit monitoring services are intended for. You can best keep track of your FICO credit score by using myFICO products, which offer visibility to the most widely used score that lenders use.
It may take 3 years before you can qualify for a conventional loan once more, and when you do, the credit score requirements will no doubt be pretty stringent. or such loans, you'll typically need a credit score of at least 620 or higher, while you'll need a score of at least 680 to snag the best mortgage rates. For the lowest unsecured personal loan interest rates, you'll need your score to be in this general vicinity. Approval for these various loan scenarios will be up to the underwriter’s discretion. If you’re considering a mortgage after bankruptcy, I would consider talking with a financial advisor or mortgage banker about specific bank guidelines and your specific scenario so you can get a better understanding of your situation.
Given everything that we've discussed, anyone facing bankruptcy can hopefully see that there's light at the end of the tunnel. Recovery from bankruptcy can happen, and will happen if you're diligent, committed, and positive.
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I am five years into my bankruptcy, and I have to admit, when I filed I felt really hopeless. As the years have passed, I've refocused and I know that I can still have a positive financial future. The thing I was most worried about was finding housing (without a co-signer), but I wanted to live in a small building, so when I found a suitable apartment, I was upfront with the owner and told him about my situation. He did his due diligence in checking out my income and references and realized that I would still make a good tenant despite my bankruptcy and credit score.
I have a credit card again, but I pay it off every month, and it's actually helped to improve my score somewhat. I'm now saving for a down payment on a house and plan to buy the year that the bankruptcy falls off of my report. And slowly, my score is creeping up again. I've learned a lot about financial responsibility since filing, and for that I am grateful.
It's been nearly 2 years since my own BK was discharged, and I've managed to get my credit score back to above 660. It's taken time, but between a few bad credit credit cards, and no late payments, my score has risen.
My Chapter 13 bankruptcy is going to be discharged in July. Recently I checked my credit score because I thought it was going to be horrible. I was pleasantly surprised...it was 630. I've also had numerous credit card offers and have been told that I'll qualify for a home loan a few months after the discharge.
It was a hard decision to file the Chapter 13 but in hindsight it was the best decision that I could made given the situation that I was in. All my bills are now paid on time. I'm never late on my bankruptcy payments. I'm saving money and leaving within my means.
Everyone,
Those are inspiring stories you have. It's always great to hear about positive stories and that even the toughest financial challenges can be overcome.
SVB @ The Digerati Life
I'm glad to see that the credit score is damaged because of things before the bankruptcy and not only because of the bankruptcy itself.
I've never missed a (minimum) payment, been late, etc. I've got lots of "paid as agreed" on my credit report going back about 11 years.
It's good to know I might have an easier time rebuilding since I do have decent credit. The only "negative" right now is that I have several cards maxed out and that really affects it.
My main concern is the amount that my insurance (car and health) may go up in the future. I've read that because a lower FICO means a higher risk that my payments may increase quite a bit. Yikes!
~GulfCoastMom (ResearchMode on bkforum)
A mom on the Gulf Coast of FL in the process of filing CH7 and blogging about it.
It's nice that people are emerging from bankruptcy reasonably intact. Sadly the people who were left holding the bag, the creditors who didn't get paid, are still on the hook. Big companies just charge the fiscally responsible higher prices and higher rates, so they're OK, they recoup their losses by gouging those who pay their bills. It's the little creditor who is wounded and will never recover from being legally cheated by a person who didn't want to pay his/her debts. As a small business person, FROM TODAY ON, rewrite any credit agreement to include the fact that the debt can NOT be discharged by bankruptcy, and that the creditor will accrue one percent interest per month on the unpaid balance forever until all owed is paid in full. Then when someone who went bankrupt recoveres, inherits, wins the lottery, gets a great paying job, buys a house, YOU CAN STEP IN AND COLLECT.
It is truly amazing to see someone speak so foul. Not everyone who filed bankruptcy did it to get away from paying their bills. Some people may have been irresponsible in the handling of their finances but alot of people were NOT. Circumstances unavoidable caused them to have to seek a relief from debt. Furthermore, unless the debt is a governmental debt or secured debt, putting a statement stating that the debt is not dischargable is moot. You can put whatever you want in a contract, but if the content of the contract is in violation of the laws in place to protect the consumer, then your inclusion of such a statement would not be even enforceable. business law 101. Accordance to the bankruptcy laws, you would not even get so much as a second look if the courts grants that person a discharge from the debt. And by the way, if the person did inherit or win the lottery in the situation you stated, they can afford to send that creditor packing by getting a damn good attorney to do so.
HA HA. I am going through a Chapter 7 filing in which $150K in unsecured debts will be discharged. The big banks that are taking the hit got the TARP money. It's the little guy like deRuiter that gets screwed. Hey buddy, if you don't like it then put all your customers on COD. Or get a job working for The Man.
Title 11 specifically prohibits credit agreements that include language like what you discuss. Going after someone for a discharged debt allows the debtor to collect costs, fees, and actual and punitive damages.
Deruitter is not much of a small business person, especially when he/she does not know the law. Not only bad advice, but untrue and not enforceable by judges and/or any other imagineable characters.
I filed in Oct 2005. My BR lawyer was recommended by a friend, but I regret choosing him -- we would meet with all my documentation, discuss things and reach agreed-up decisions; then he would present me with having changed his mind (unilaterally) about many of the things we'd agreed upon, such as whether we needed to notify an ex with whom I had no joint finances and no remaining communication. And worst, my car. I was steadfast and sure that I didn't want to include my car in the BR and he said OK; then on the day my case went to court, he informed me breezily that he had decided to include it anyway. And there's my question. I continued to pay on my car anyway, until it was paid off. When I look at my credit reports, they say the car loan was included in the BR and I don't see any recognition of the fact that I actually made every payment for 6 years, all on time. Is there a way I can get this mentioned & would it help my credit rating? The debts I defaulted on were all major credit cards which raised their interest rates and said "no" to working with me when I called them knowing I was heading into trouble. Very cold and unhelpful even when I called in advance of my not being able to keep up with the payments, seeking ways I could avoid looking into bankruptcy.
Great topic. Yes, bankruptcy can feel like a depressing time in your life, but it is important to remember that just because you are "bankrupt" doesn't mean you don't have other assets.
After the bankruptcy proceedings take stock of what is left. Do you have a job, family, education, marketable skills, access to the internet and helpful information? Maximizing the tools you still have will expedite your financial recovery.
Remember it is you, not things, that is the most important factor in recovering from bankruptcy and coming back stronger.
deRuiter:
> As a small business person, FROM TODAY ON, rewrite any credit agreement to include the fact that the debt can NOT be discharged by bankruptcy (...). Then when someone who went bankrupt recoveres (...), YOU CAN STEP IN AND COLLECT.
No, you can't. As long as the debt doesn't fall into certain defined categories (student debt, child support), it is either discharged or a payment plan is set up by the bankcruptcy judge. Private clauses on credit agreements that you suggest are generally declared unenforceable by the judge. The creditor has no legal standing afterwards to collect - if the creditor attempts to do so multiple times, the judge will punish the creditor. That is the meaning of bankcruptcy PROTECTION - it is a protection against life long servitude to a creditor.
I have a car loan that has another year on it until I am fully paid off. I filed for bankruptcy and it was discharged recently. I will be getting a bonus in a month that will allow me to pay off the remaining auto loan. Is it better to instead pay off every month which may help my credit score or simply pay it all off which will save me money in not having to pay interest?
Life after 13" bankruptcy has been Hell. Husband and I were injured at work in 90"s. Filed B.R. IN 95", paid $1,800 a month for 5 yrs., never missed one payment. Issued discharge order in 2000. Soon after, Cenlar, the original servicer, attempted to collect and put the debt on our good credit. 2002, Cenlar re-sold the discharged mortgage debt to Aurora Loan Services, they listed it on our credit as a foureclosure for the next 3 years. MidFirst bought the mortgage FHA/HUD discharged debt in 2005, with Midland Mortgage being the servicer, attempted to collect, enlisting the Law Firm of Barrett Burke Wilson Castle Daffin Frappier. BBWCDF sent letter in 2008 stating the debt was indeed ours. We filed with the FTC, Office Of Thrift Supervision, nothing done, so we sued all 4 in 2008. We settled our difference with Cenlar and Aurora in 2009, they were non-suited.
Midland and BBWCDF, we refused to accept their $40,000 settlement offer, their ambigious, illegal, never-before-seen settlement agreement included the 2000 discharged FHA/HUD Mortgage debt. But get this, their attorney Steven Leyh lied to Judge Wayne Mallia in the defendant's summary judgment stating that we made changes to the settlement agreement on May 11, 2009 and that we had verblly agreed. May 11, 2009, we showed proof to the court that I had been in the hospital May 3, 2009, thru May 11, 2009. My husband was on dialysis on May 11, 2009, we were 50 miles apart. But nothing was ever signed by us, we refused.
We fired our attorney in 2009, paid him $21,000 and became pro se, because the court allowed an invalid, unauthorized Rule 11, 2 page letter to be filed and signed that did not conform to the TRCP 11. We filed the lawsuit, but there is a judgement against us, to accept the $40,000, sign the illegal SA or face jail/fine. Has anyone ever heard of a discharged debt being given back to the debtor after it was discharged by a federal judge? Now you must see that MidFirst Bank contiues to list the debt in our names, loan #0050694040 and FHA Case #493-3741185, phone #1-800-499-1452. This is OCT. 2010 and the stay was lifted in 96", so it has been 14, long restless yrs and we are yet fighting a 2000 zombie discharged mortgage debt. Our case is on appeal at the 14th Circuit Court of Appeals and a Civil Rights Suit on appeal at the 5th Circuit Court of Appeals. We are pro se in both cases. Google "ZOMBIE DEBT REFUSE TO DIE,PRINCE ELLA GREEN". MidFirst is an approved FHA/HUD lender, but hud refuse to step in. So the books are being cooked at MidFirst, this is a crime. What makes it worst is that we are both disabled and the system wont protect us, their is a valid 2000" DISCHARGE ORDER"!!!!!!!
Prince Ella Green, I am battling Wells Fargo/DBSR/McCalla Raymer with similar issues. These banks have resorted to criminal activity which I think should be prosecuted--but finding an attorney to sincerely prosecute is near impossible, as there is such a "cozy" relationship amongst them.
Car loans and bankruptcy are tricky. If you reaffirm your debt (and if it is allowed through the bankruptcy), you will be allowed to keep your car as long as you continue to make payments. It's important to note, however, that *your payments will not be reported to credit bureaus.* In other words, you won't be rebuilding your credit by making those payments, but you will still have a car.
Maybe the best way to utilize your car in rebuilding your credit is to refinance after the bankruptcy. You will get plenty of offers in the mail, and a refi is treated like a new loan to the credit reporting agencies.
Of course, you will also get plenty of offers for loans to purchase a new or used vehicle. Your own financial situation will determine if this is the best move, but a car loan is a proven way to build credit.
You are absolutely right. Filing for bankruptcy is our golden key to be debt free. And as we've been in this situation we should never go back to this path. I am glad to hear that keeping some mortgage could possibly save our credit score, as that's what I did. I wanted to share here my personal experience to those who are looking to file for one. Bankruptcy sounds scary but keep in mind this is not the end of the world. It is more scary to live everyday knowing nothing is left in your pocket. Bankruptcy will help us again work on our debts and get debt free. For some here who is looking to file for one however CANNOT AFFORD THE ATTORNEY'S FEE well you have another option file for yourself (which is not advisable) or get a professional a bankruptcy preparer and save 90%. That is what I did, I opted to 247 Bankruptcy, you may wanna go head and find someone else, but for me I have tried this company and they offer a low fees, and explained everything to me clearly, the law process and that helps me win this battle.