Picture this: your personal bankruptcy is completed and you are opening your mail to discover your bankruptcy discharge papers stating that all of your debt has been eliminated through a chapter 7 bankruptcy. Sounds great, right? The best part about it is that the idea isn’t so far fetched; it happens to thousands of Americans every day. The day that you receive your bankruptcy discharge in the mail is the day the credit recovery process starts. Here are some signs that you have recovered from your bankruptcy:
- You Aren’t Hearing from Creditors: Before you filed personal bankruptcy you may have been one of millions of Americans that are plagued every day by creditors calling them. Depending on who your creditors are it could be legal for them to contact you at home 5-10 times a day asking for some kind of payment. This is enough to stress anyone out, and it’s sometimes just unbearable. If you are no longer being harassed by creditors every day then it probably means that they received notice of your bankruptcy and have correctly reported your account to the credit bureau as having a zero balance.
- You are Able to Save Money: Typically, when a chapter 7 bankruptcy is complete most unsecured debts are wiped away and you are able to start fresh financially. In most cases the debtor goes from having dozens of bills each month to simply the necessities like rent, utilities, and groceries. This allows individuals coming out of bankruptcy to do something they may have never had the chance to do before: save money! Treat your savings like you would any other necessary payment and put something towards it with every paycheck. Before you know it you will have a savings account to really be proud of.
- Your Credit Score is on the Rise: You may have heard the myth that filing bankruptcy drops your credit score to zero and it’s impossible to ever bring it up again, but don’t believe everything you hear! Although filing personal bankruptcy does affect your credit score it does not drop it to zero and you will have the ability to increase it the day your discharge papers are in. You can rebuild your credit score by making timely payments on secured debts like vehicles, utilities and student loans. Increasing your credit score after filing bankruptcy does not happen overnight, but with positive financial decisions it typically becomes better than it has ever been.
Filing bankruptcy is a process; before filing you are looking for an affordable bankruptcy attorney, during the filing process you have to decide Chapter 7 vs. Chapter 13, and after your bankruptcy is completed you have to continue on the road to financial recovery. Just remember that you aren’t alone in this process and make sure to ask your bankruptcy lawyer plenty of questions each step of the way. Although bankruptcy may seem like a daunting process, in most cases the outcome is well worth the wait.
For decades credit card debt has been at the root of bankruptcy. It has been the main cause of Chapter 7 bankruptcyand is slowly becoming a key reason that people are turning to Chapter 13 bankruptcy. The question remains, why are credit cards and bankruptcy constantly tied to one another and how can we stop it? Here are a few ideas to help you control your credit card debt:
- Utilize Auto-Pay: Virtually all credit card companies have an “auto-pay” option available because it ensures that they get paid each month. That may seem like only a perk for the credit card companies, but you can use it to your advantage too. By signing up for auto-pay you do not have to worry about being late on a payment and you will be instantly building credit. Just make sure to set your auto pay to deduct your minimum monthly payment around the time you know you will have the money in your account and you will begin building healthy credit immediately!
- Pay Attention to Fees and Interest: Whether you are just now applying for your first credit card or have a wallet full of them you should always be aware of what you are being charged in interest, annual fees, and late fees. Be wary of cards with high annual fees and high APR% because these are the types of fees that push individuals over their credit limit without them even knowing. Once you are over your credit limit or are using more than 70% of your credit line it could possibly reflect negatively on your credit report. As much trouble as it may seem, reading the fine print before signing up for any credit card is the best place to start.
- Only Spend Money that you Really Have: Some people say that this rule is the most important and is what gets most debtors into the kind of trouble they can’t overcome without bankruptcy help. Remember that credit cards are not just free money; these credit lines have very strict due dates on when you must pay them back and if you will not be able to pay them at that time do not use them at all. A great way to get in the habit of only spending what you have is to start with small and repetitive purchases such as gas. Use your credit card at the gas pump 1 or 2 times a month and when you get home pay it off immediately so that you can be building credit, but not going overboard and spending what you don’t have.
Despite what a lot of our society thinks, credit cards are not evil. Yes, they may lead to a slippery slope of tons of debt, but if used the right way they can be truly beneficial. The key is to be careful and not to overspend because credit cards can lead to the simplest do it yourself bankruptcy or the most complex Chapter 13 bankruptcy depending on how they are used and abused.
While working as a bankruptcy paralegal I had a surprising number of young adults call to ask the same question: “How old do I have to be to file bankruptcy?” The answer is fairly simple: there is no specific age restriction, but typically you have to be 18 to incur most types of debt (i.e credit cards and personal loans) so in most cases filers are 18 or older. There are tons of reasons why going bankrupt soon after your eighteenth birthday is not the smartest thing to do, but lets just start with the top 3:
- Troubling Your Mid 20s: According to the United States Bankruptcy Code, an individual can only file for Chapter 7 bankruptcy protection every 8 years. This means that if you file bankruptcy at the age of 18, you are putting your finances at risk until you are at least 26 years old. We all know that dozens of life changing events happen to people between the ages of 18-26 including college, marriage, children, and in some cases even purchasing a home and/or vehicle; these things will be more difficult to finance if you already have bankruptcy on your credit record.
- Risking Student Loan Eligibility: If an individual files for bankruptcy protection at the age of 18 and then seeks the help of federal or private student loans to pursue higher education they may face tougher eligibility requirements than other students who do not. Federal student loans are not likely to discriminate based on a bankruptcy, and in most cases they do not; the trouble with eligibility typically comes when students apply for private student loans after filing personal bankruptcy. Many private student loan companies have credit criteria that preclude people with a bankruptcy within the past 7 or 10 years from borrowing without a creditworthy cosigner.
- Harming Your Fresh Credit Report: Like I mentioned earlier the age of 18 is the earliest that most credit card companies will allow individuals to receive credit lines, so by filing bankruptcy soon after that you will have the mark of bankruptcy on your credit report for 7-10 years and negate that clean record you had as an 18 year old. Although that bankruptcy mark will not make it impossible to be approved for new credit, it does make things more difficult.
All of this is not to say that going bankrupt in your early 20s is a terrible decision, and it may be exactly what you need to jump start your finances in the right direction. You should just be aware of the effects bankruptcies have on individuals during and after their case is completed and also the alternatives to filing at all. Contact your credit card companies if you are a new customer and feel yourself starting to struggle with payments, or as friends or family for sound financial advice. If you are young and considering bankruptcy protection for the first time it may be in your best interest to not try to file bankruptcy yourself, and instead hire a bankruptcy lawyer to help you throughout the process.
Whether you are filing chapter 7 or filing chapter 13 bankruptcy, it is always best to be prepared with the knowledge of what happens after your filing is complete. The typical paperwork you will receive to let you know that your case has legally been completed are known as the “discharge” papers. Discharge papers explain to you that your case was both completed and successful. It is always best to keep any bankruptcy forms you receive from the bankruptcy court in a personal file that you can easily keep track of. It doesn’t matter if you hired a lawyer to file your case or if you utilized a do it yourself bankruptcy, you could easily contract one of these 2 common problems after filing bankruptcy:
- Immediately Accepting New Credit: It is typical for credit card companies to offer new credit lines to individuals coming out of bankruptcy, and in some cases debtors say they are bombarded with offers in the mail every day after their discharge. Don’t be fooled though, this isn’t the credit card company trying to be generous; in fact it is quite the opposite. The companies that offer this immediate credit relief know that the US bankruptcy code only allows a debtor to file a Chapter 7 case every 8 years, so the sooner they can get your hooked on for more debt, the better for them. Instead of readily accepting these offers, think about smarter credit choices such as gas or grocery store credit cards, or even secured credit cards through your local bank. These options will allow you to rebuild credit in a healthy way and stay away from another bankruptcy 8 years down the road.
- Not Understanding Your Credit Report: It is well known that bankruptcy will stay on your credit report for 7-10 years depending on the type of Chapter that you file, but many people don’t know exactly how that will affect their life after bankruptcy. While it is true that having “bankruptcy” on your credit report does not make it impossible to purchase items, it does make things a bit more difficult. For instance, your credit will be checked if you want to do any of the following: buy a car, rent an apartment, apply for a mortgage, apply for a personal loan, apply for certain government or bank jobs. Because of your bankruptcy mark you may not be given the best interest rates, but those types of hurdles will decrease with time; many debtors say that they have no trouble purchasing a vehicle 1 year after bankruptcy, and financing a new mortgage 2 years after.
As you can see, both of these common post bankruptcy problems have simple solutions. Be sure to discuss any anxiety you are having with your bankruptcy attorney and write down any answers he/she gives you so that you feel prepared if that worry starts to set in again. If you are choosing a “do it yourself bankruptcy”and do not have an attorney, just try googling the phrase “bk info” for helpful information from knowledgeable sources. Either way, it is always best to know the options before diving head first into an unknown process.