Getting relief from overwhelming debt is a life changer for those unable to meet ever-growing financial obligations. Bankruptcy is the method most people choose to eliminate large amounts of debt. Chapter 7 debtors have qualifying debts completely discharged or wiped out, and receive in return the peace of mind that a creditor no longer has the right to contact or pursue a claim once the bankruptcy case is concluded. However, given the extraordinary relief bankruptcy provides, there are some consequences debtors need to know, as well as methods to speed up recovering from the financial hit. Thousands of Americans explore the option of Chapter 7 bankruptcy each year, but many shy away from committing to the process due to permanent damage to their ability to get credit in future. Western society is practically a cash-free place to live, so having access to credit is not a mere luxury at this point. Consequently, understanding the financial implications of the bankruptcy itself and future credit opportunities is key to making informed decisions. A discussion of these matters will follow below.

Immediate Consequences of Bankruptcy

Like any major decision, filing for Chapter 7 bankruptcy has several significant positive effects, but also brings about several negative repercussions. For the positive points, Chapter 7 allows debtors to discharge most personal debt, which is a permanent court order eliminating these obligations and prohibiting further collection efforts. Additionally, an automatic stay is issued at the start of the bankruptcy case that curtails creditor collection from day one, so the debtor receives a reprieve from the constant barrage of phone calls and letters while the bankruptcy petition is pending.

On the negative, a Chapter 7 discharge will not get rid of real property debt, such as a home mortgage, and requires the owner to negotiate with the lender about restructuring the monthly payment and length of repayment. Furthermore, as most people are aware, bankruptcy does place a considerable hit on one’s credit score, and can stay on a credit report up to 10 years after discharge. The severity of the hit will depend upon the score at the start of bankruptcy, the amount of debt eliminated, and the number of accounts involved. One final point is the loss of privacy bankruptcy brings, as everything filed with and issued by the court is a matter of public record. However, sensitive information is redacted, and unless a person knew about a case, the likelihood a non-creditor would seek information is small.

Recovering Quickly

With this understanding of what bankruptcy provides and triggers, the next piece is to figure out how to recover from the negative effects as quickly as possible. The repercussions described above may give debtors a sense of doom about getting loans after bankruptcy, but recent studies have revealed that just three years post-bankruptcy, borrowers are able to get loans at rates similar to those offered to applicants with no bankruptcy history. Many former filers have credit scores of 640 or higher just one year after the bankruptcy case concludes. A strong credit score going into bankruptcy influences how quickly scores rebound, but a few strategies can also be employed to speed up the recovery process, including:

• Obtaining a secured credit card, with limits determined by the deposit amount. Ideally, the account holder makes at least one charge per month and pays off the balance in full every payment cycle, which serves to start the credit rebuilding process.
• Monitoring credit reports to guard against identity theft and to keep tabs on one’s credit score, as once it reaches 700 or higher getting an unsecured credit card should be an option.
• Creating a budget to avoid going through the bankruptcy process again.

Hire a Bankruptcy Attorney

Bankruptcy may not the be the goal, but if you need help getting out from unsustainable debt, it can help you get your financial life back. Christopher L. Arrington, P.C. knows the frustration and stress of those contemplating bankruptcy, and can help you decide which path to financial recovery is right for you. Contact the Danville law firm to schedule an appointment.