Frequent Questions About How Bankruptcy Affects Others and Rebuilding Credit
August 27, 2009
As readers know, our office has a significant bankruptcy practice (more bankruptcy information is available there). I addition to the issues Mr. Schlissel addressed yesterday, below are some more frequently asked questions and Mr. Schlissel’s answers. For help with Bankruptcy, or any other matter, you can always contact our office.
Q: How does filing for bankruptcy affect others, like creditors, family members, and co-signors
A: It depends on the type of bankruptcy. If it’s a Chapter 7 Bankruptcy, which is very often called a “straight bankruptcy,” the purpose of that is to eliminate your debts completely. In a Chapter 7 bankruptcy, all of your assets are basically liquidated, except for exempt assets, and distributed to your creditor. Now, if you don’t have any assets, such as a house, chapter 7 is usually the way to go and at the end of the bankruptcy, you have no debts at all.
The problem is that if you file a Chapter 7 bankruptcy and you have a co-debtor, only you are discharged from the debt. At the end of the bankruptcy, the co-debtor still owes the debt. Whatever portion you didn’t pay, or if you didn’t pay anyportion of it, the co-debtor or guarantor owes the balance of he debt. In those situations where there’s husbands and wives or co-debtors, it is very often recommend that they both file for bankruptcy.
In a Chapter 13, you’re entering into a “plan” where you pay a percentage of the amount owed. If it’s a secured creditor which has a lien on your car, or a bank that has a mortgage on your house, very often you’re paying 100% of what is owed to them. If the debt is owed to credit card companies, some plans have you paying as little as 10-15% of what you owe.
In a Chapter 13, there is a stay, or injunction, preventing any creditor from taking legal action against a co-debtor or guarantor. But that is only a temporary form of relief. It doesn’t release the co-debtor for the amount of the debt that is not paid under the Chapter 13 plan.
The law is complicated, even more so than a lot of other areas of law that consumers have to deal with. Not only that, but not all attorneys do bankruptcy work. In fact, most of them do not do bankruptcy. Very few attorneys get involved in dealing with federal proceedings such as bankruptcy.
Q: How long does the bankruptcy process usually take?
A: Chapter 7, from start to finish, will usually take between three and six months. But a Chapter 13 proceeding can take anywhere from three to five years.
Q: What sorts of things do you usually do to help your clients rebuild their credit after bankruptcy?
A: After filing for bankruptcy, most good attorneys talk with their clients about how they can rebuild their credit. If done correctly, you can rebuild your credit within six months to a year after filing for bankruptcy.
When an individual falls behind on their financial obligations, all sorts of negative credit information is placed on their credit report. Filing for bankruptcy can help most people in the long run as they can develop good credit becxause if you fall behind on your mortgage, credit card payments or car payments, your credit score goes way down.
After you file for bankruptcy and you’re discharged, you don’t have any debt. If you enter into an agreement for a secured credit card or something else of that nature, you can rebuild your credit score. People whose bankruptcies I have handled have credit scores of 750 because they have no debt. they are now debt-free and the have been able to reestablish credit and show that they’re making payments to their creditors on a timely basis.
Any good bankruptcy attorney should want to have a long term relationship with his clients and should discuss rebuilding the person’s credit. It’s something we always do for our clients. We feel that it’s part of the process of educating them on how to rebuild their credit after the bankruptcy is complete.
Contact us anytime for bankruptcy help.
Picture courtesy of hrbor.org.