Debts and Bankruptcy

The bankruptcy has been finalized and you’re ready to move on in your financial freedom. You’ll need to make note of the impacts to certain aspects of your life that you may not have thought of before filing bankruptcy. An important item to note is how this will affect your spouse’s credit. In addition, most of your debts will be discharged in your bankruptcy, but maybe not all of them. There may even be some you don’t include if you want to keep them for use after the bankruptcy.

In regards to the impact on your spouse’s credit, everything depends on whether your spouse was included in the bankruptcy. If not, then your spouse may or may not be facing a dilemma.

Was your spouse on any of your credit cards or debts, including as a co-signer? If so, then debtors can now pursue your spouse for payment and satisfaction of those debts.
Was your spouse included in the bankruptcy? If not, the bankruptcy, in and of itself, will not impact your spouse’s credit. This applies as long as your spouse was not on any of the loans or credit included in the bankruptcy.

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Below is a breakdown of what happens to the debts you have going into the bankruptcy – what will be discharged and what will remain after the bankruptcy.

Dischargeable Debts

The debts below may be included and discharged in your bankruptcy. The assumption should be made that these debts were in effect prior to filing for bankruptcy.

Any judgments against you.
Any auto accident claims against you.
Any kind of personal loans. If property is associated with it, it will need to be returned to debtor.
Debt deficiencies that arise out of the sale of repossessed property – e.g., home loan, auto loan.
Credit card debt.
Any leases you signed.
Claims against you for negligence, except as noted in non-dischargeable debts.
Any guaranties you signed for another person.

debt after bankruptcy

Non-Dischargeable Debts

There are certain debts that will be deemed non-dischargeable debts. You will be required by law to pay these even after your bankruptcy is finalized. Many are listed as follows:

Any debts you did not list in the bankruptcy.
Any new debts you accrued after you filed for bankruptcy.
Most taxes will still be due.
Child support or alimony support payments.
Any fines due to criminal prosecution against you.
Mortgage payments, if you kept your home.
Car loan, if you reaffirm the loan within 45 days of your 341 bankruptcy meeting of creditors.
School loans, unless it would impose an undue hardship.

Effects of Bankruptcy

debt after bankruptcy There is general thought that bankruptcy gives you a clean slate and you can start fresh in your financial mission. That is true to a certain extent, except that the reporting of it stays on your credit for up to 10 years. Even so, you may be able to get a new car loan, purchase a new home or apply for a school loan.

Before doing most of that, get a credit report from each of the three major credit reporting agencies. By law, you are allowed one free credit report annually. Note any discrepancies, submit changes to the appropriate credit reporting agencies and wait until notified that the changes are made. Now, you are ready to begin your quest in obtaining new credit.

Shop around for a good credit card. Apply for an unsecured, but take a secured one if that’s all you can get. Read the fine print that explains all charges before accepting any credit card. Use it for a few months. Keep a balance, but make sure you pay your payments on time. Now, you’re ready to apply for a loan.

Car Loan

Once your credit reporting is accurate, you may be surprised at how easy it is to get a car loan. Some caveats you may encounter may be that you have to pay a higher interest rate, or have to come up with a larger down payment, or pay more overall. You can find a car dealership in most major cities that will give you a loan with only proof of employment, regardless of your credit history. The drawback to this is that you typically pay twice as much or more than the car is worth.

A bad credit car loan may also be an option that you’ll want to consider. Do a search on the Internet, and you’ll find plenty of lenders willing to assist you. Your best bet is to find an auto broker to assist you with a bad credit car loan. The auto broker can submit your application to many auto loan lenders, and have an answer for you in minutes. You’ll be able to pick from multiple offers.

Home Loan

A mortgage is going to be a lot trickier. Most lending institutions will not even consider you for a home loan until two years after the date your bankruptcy was finalized. Even so, you have to have an incredible credit history since the bankruptcy.

You may be able to obtain a home loan one year after your bankruptcy, though. You would be required to do the following:

Show that your bankruptcy was caused by circumstances beyond your control.
Exhibit the ability to manage your finances effectively.
Prove that, based on your current financial situation; it is not likely that the events that led to your bankruptcy would recur.

If you’re in a Chapter 13 Bankruptcy, you also may be able to obtain an FHA mortgage within one year. The requirements for consideration are that you have completed one year of satisfactory payments and can obtain approval from the court to get the home loan.

Student Loan

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After a bankruptcy, it is almost impossible to obtain a student loan from a private lender. If you do, you’ll probably pay a very high adjustable interest rate. Fortunately, guaranteed student loans are not impacted by your credit history. On the contrary, federal laws prohibit the government from discriminating against anyone who has filed for bankruptcy. The other aspect you have on your side is that the government believes in education.

A factor weighed in being considered for a government student loan is your income. If your income is below a certain amount, you may be eligible for quite a substantial student loan that you don’t pay interest on until after you finish school. Start with filling out your Free Application for Federal Student Aid (FAFSA). Take your time and fill it out in its entirety. Ensure accuracy, because inaccurate or incomplete entries could inhibit the approval process.

Life After Bankruptcy

There is actually life after bankruptcy, and many have found financial freedom because of it. Of course, along with that they changed their spending habits, re-established their credit and now live a responsible lifestyle.

Below are a few success stories of people who went bankrupt and learned from their mistakes – some famous, some not-so:

Private Business Owner. A Houston business owner came to terms with his current financial situation. He and his wife had 3-year-old triplets, $1.3 million in debt and threatening creditors banging on their door. They chose Chapter 13 Bankruptcy. Some of their bills were dismissed and others were lumped into one manageable payment. Since then the couple has created a dozen jobs with their expanding firm, Big Ink.
LeftofArizona. A gentleman who only goes by his user name experienced a mental breakdown. He had to take Family Medical Leave Act (FMLA), which brought his income down to nothing. Visits to the psychiatrist were expensive and his medical insurance paid only a very small portion of them. He filed Chapter 7 Bankruptcy. He says it saved his life. His life is now on track. He, again, has a good job and is paying his bills.
George Foreman. In the 1980’s, George Foreman was on the brink of bankruptcy. At 45, he returned to boxing to regain his heavyweight title. The bout was in 1994 against Michael Moorer. After winning the fight, he paid off millions in debt and launched his George Foreman Grill. The rest is history.
Burt Reynolds. In 1996, Burt Reynolds went into Chapter 11 Bankruptcy due to excessive spending, failed investments, bad career choices and an expensive divorce from Loni Anderson. He bounced back, though, in 1998, with the success of Striptease and Boogie Nights. He appears to have been doing fine ever since.
Walt Disney. Who does not know this famous name? Although, his career ended in great success, it did not start out that way. His first distributor cheated him and caused his studio to go bankrupt. He packed up, moved to Hollywood and released his new character. Mickey Mouse made Disney a household name.
Willie Nelson. This famous country singer went bankrupt in 1990. He owed $16.7 million to the IRS. He released a double album with all proceeds going to the IRS. His debt was paid off by 1993. He’s now “… on the road again.”

Bankruptcy Facts

Want to know some cool bankruptcy facts and figures? Take a gander at the following:

A Chapter 7 Bankruptcy takes about 3 to 6 months from the time it is filed to be finalized.
Bankruptcy filings increased in 2008 from 2007 by 33%.
A Chapter 13 Bankruptcy is typically considered by those who want to save their home or other property.
A Chapter 7 Bankruptcy costs around $1000, a Chapter 13 Bankruptcy costs around $3000.
The courts can deny you a discharge from your bankruptcy if you hid or fraudulently transferred assets prior to filing.
Every state allows you to keep some of your property, regardless of the bankruptcy.
A creditor cannot collect on any debt that has been discharged in a bankruptcy.
You may not ever be able to obtain a credit card through a company you include in your bankruptcy – e.g., American Express makes a practice of excluding you from further credit if you include your debt to them in a bankruptcy. This applies for your lifetime.
Bankruptcy can actually help repair your credit. It dismisses most, if not all, your debt, bringing it to a zero balance. Paid off debt improves your credit score.

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