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What Does Life After Bankruptcy Look Like?
Some people find themselves in a situation where they are unable to repay all their accumulated debts. Whether it is due to medical emergencies or a job loss, these dire situations put some people in a position where they have no choice but to max their cards and deplete their savings. Unfortunately, making the minimum monthly payments on credit cards and loans remains challenging even with unemployment checks or a temporary job.
Filing for bankruptcy can be a viable approach if you have financial issues. All collection actions are halted, including phone calls, wage garnishments, and certain lawsuits. It also eliminates various debts, such as credit card accounts, medical bills, and personal loans. However, it does not eliminate all responsibilities. For example, you still need to pay your student loans (most filers will NOT qualify for student loan discharge) as well as arrearages for child support, alimony, and most tax debts.
Life after bankruptcy means a new beginning. Your credit score will likely improve immediately upon discharge of your case. This is due to a large portion of one’s credit score stemming from the Debt-to-Income Ratio. The bankruptcy filing will stay on your credit report for ten years. However, it will only affect you for about two years. Most filers find that they can purchase a vehicle the instant a case is discharged. Additionally, debtors can expect a reasonable interest rate on a vehicle approximately a year after discharge. Most filers find that they are able to receive a credit card as soon as the Bankruptcy has been discharged. The reason for the rapid recovery of one’s credit is because you are viewed as a lower risk post discharge. You have legally written off at least some of your previous debts thus lowering your debt-to-income ratio. The largest affect stemming from a bankruptcy filing is a filers ability to qualify for a mortgage. Most filers find that they can qualify for a mortgage 2 years after a Chapter 7 discharge.
Filing for Divorce and Bankruptcy
Financial struggles are a common source of marital difficulties that lead to divorce. Going through a tough divorce during the COVID-19 pandemic is difficult enough. Still, the struggles will be exacerbated if you lose your job or have to pay for extensive medical attention. Even if you don’t get sick or lose your job, divorce hurts most peoples’ finances and is the leading cause of bankruptcy in the United States.
Divorce and bankruptcy are two of the most stressful and mentally draining experiences a person can go through. Nonetheless, planning ahead will make both your bankruptcy and divorce less complicated and less expensive. The amount of property and debt you have, as well as the form of bankruptcy you intend to claim, determine if you can file for bankruptcy before or after a divorce.
In addition, applying for divorce and bankruptcy at the same time is not a smart option. Filing for bankruptcy when divorcing will confuse property separation, make each spouse’s living arrangement less predictable, and cause both the bankruptcy and the divorce to be prolonged.
Coronavirus and Bankruptcy
Bankruptcies track the financial climate as companies and consumers pursue relief from macro-economic disruptions. During the COVID-19 crisis, though, this relationship has flipped around. Despite media reports and many experts’ expectations on how the coronavirus and bankruptcy would interact, consumer and small business filing have sharply declined since mid-March 2020.
Despite accounting for a limited proportion of all bankruptcies, the number of Chapter 11 filings by major companies has risen since 2019. Consumers, small companies, and multinational firms have had different financial experiences during the COVID-19 crisis. Large companies have pursued and obtained bankruptcy protection as they would in a typical recession. Comparatively, affluent households have benefited on average from the fiscal stimulus and housing moratoria mandated by the CARES Act and other initiatives. Non-homeowners and small companies, on the other hand, may face financial, physical, and technical obstacles to filing for bankruptcy, especially in areas where unemployment is high.
How Bankruptcy Affects Credit Score
Bankruptcy is a legal proceeding where debtors have the opportunity to reorganize or eradicate their debt. Filing for bankruptcy can be a very financially rewarding situation for those overwhelmed with debt. A bankruptcy lawyer should be consulted as filing for bankruptcy is not an easy decision.
While the main purpose of bankruptcy can help to ease your debt burdens, it provides the added benefit of typically boosting credit score. Although the bankruptcy could appear on the credit report for up to 10 years, it does not have the detrimental effect some people might think it does.
Obtaining credit after a bankruptcy case is typically very easy. Credit cards, which are important for emergencies, typically can be obtained right after discharge (albeit with low limits in the range of $250 -$500). Your credit will usually improve if you follow some simple steps to boosting it after bankruptcy.
No-Asset Bankruptcy Cases in Chapter 7
The majority of Chapter 7 bankruptcy filers do not lose any assets through the bankruptcy process. These cases are often referred to as no-asset bankruptcy cases. In such a case, the Trustee informs creditors not to expect payment out of the bankruptcy proceeds.
In a no-asset Chapter 7 scenario, you do not have any assets that the bankruptcy trustee is allowed to take and sell for the benefit of creditors. Of course, most debtors have personal property and a home, but the debtor still normally retains all of their property because it is protected under federal or state law exemptions.
Understanding What No Asset Means
“No Asset” is a term used to describe debtors who declare bankruptcy without owning property that the Trustee or Creditors can take. It’s worth noting that this doesn’t mean the debtor is homeless or living in poverty. It implies that the debtor’s assets are all secured or shielded by exemptions or that the debtor’s assets that are not exempt are not valuable enough to warrant being sold.
Consolidated Appropriations Act 2021 Bankruptcy Relief Provisions
Congress passed the Consolidated Appropriation Act (CAA) on December 27, 2020. The almost 5,600-page bill is claimed to be the longest bill ever enacted by Congress. Besides financing the federal government in 2021 and providing relief for individuals and businesses affected by COVID, the current bill modifies the Bankruptcy Code in at least nine respects. Most of the amendments will end after one or two years. One of the amendments would only become applicable once the Small Business Administration signs it.
Below, you’ll find a brief description of some of the amendments that directly affect the bankruptcy code.
PPP loans available to some debtors (and trustees)
The CARES Act developed the Paycheck Protection Program (PPP), the now-familiar program of forgivable loans operated by the Small Business Administration (SBA). Almost right after the CARES Act’s passing, the debtors started to apply for PPP loans, causing a debate about the supply of such loans to bankrupt businesses. The SBA repeatedly opposed PPP loans to debtors, and the case law was varied throughout the country.
Bankruptcy and Child Support
Noncustodial parents with a child support obligation who are thinking about filing for Bankruptcy must understand the relationship between Bankruptcy and Child Support. Parents ordered to pay child support have a legal responsibility to consistently take care of their children financially, even if they are struggling with debt. Each Chapter of Bankruptcy has different requirements for Debtors who owe Child Support.
Child Support Obligor (Owes Support) & Chapter 13 Bankruptcy
Noncustodial parents who owe Child Support and file for Chapter 13 Bankruptcy still need to fulfill their responsibilities under the support order. The monthly obligation must remain current throughout the life of the case otherwise the Debtor will face dismissal of the case and or denial of discharge. If the support order is in arrears at the time a Chapter 13 is filed, those arrears would be repaid through the Chapter 13 Plan. Upon completion of the 3-5 year plan the child support would be current due to repayment of the arrears through the plan and the required maintenance of the monthly payments over the life of the plan.
What is an Automatic Stay in Bankruptcy?
Automatic Stay: The instant that a Bankruptcy Case is filed an injunction called the Automatic Stay is put into place, with certain exceptions, to prevent creditors from continuing collection actions of any kind. This includes continuation of lawsuits, phone calls, emails, letters, etc. that seek to collect a pre-petition debt.
The Automatic Stay is the first benefit of filing for Bankruptcy. The Automatic Stay prohibits the continuation or filing of lawsuits, stops foreclosures, car repossessions, etc.
What does automatic stay prevent?
Eviction
Getting evicted can be stopped with the automatic stay, that is if your landlord does not have a judgment for possession against you yet. The Automatic Stay along with a Chapter 13 Bankruptcy could provide an opportunity to pay the back rent and continue to stay in your home.
Texas Bankruptcy and Foreclosure
Failing to make mortgage payments in Texas can mean getting your home foreclosed. Lenders notify debtors about the foreclosure by mail to provide a 20 day time frame to pay the loan; if the debt isn’t paid off, lenders notify the loan is due and a sale of the property has been scheduled to cover it. There are interactions between Texas bankruptcy and foreclosure. Bankruptcies are filed to eliminate or establish repayment plans for debts and to keep property.
The law recognizes that the debtor and mortgagee have legitimate interests to protect in the property. So you might be wondering how exactly will bankruptcy and foreclosure interact in this process. There is the possibility of halting foreclosure and keeping your home if you file for bankruptcy. This is mostly achieved by filing for Chapter 13 bankruptcy which enacts an automatic stay, meaning that you get to keep your home. For this, you’ll need steady income to keep paying monthly mortgage payments along with the repayment plan.
Non-Dischargeable Debts
Non-Dischargeable Debts
When you file for bankruptcy, most of your debts will be discharged, which means the debts are wiped out. Debts that can’t be wiped out through a bankruptcy proceeding are called non-dischargeable debts. These include student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes. child support, and alimony.
Debts that are otherwise dischargeable can become non-dischargeable if a creditor files an adversary proceeding against a debtor based on the debt being acquired by fraudulent acts,embezzlement, larceny or breach of fiduciary responsibility.
Texas Bankruptcy Non-Dischargeable Debts
The following debts can’t be discharged in either Chapter 7 or Chapter 13 Texas bankruptcies, meaning that the court always considers these debts to be non-dischargeable.
From our office in Arlington, we serve clients throughout Tarrant County, Dallas County, Parker County, Denton County, Wise County, Dallas, Fort Worth, Irving, Grand Prairie, Bedford, Keller, Euless, Richland Hills, North Richland Hills, Mansfield, Coppell, Kennedale, Las Colinas, Burleson, Azle, Saginaw, Haltom City, Watauga, Southlake, Benbrook, Colleyville, Grapevine, Crowley, Aledo, Roanoke, Trophy Club, Carrollton, Farmers Branch, Richardson, and Hurst, as well as other communities across North Texas.
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