Life After Bankruptcy

Bankruptcy is a complicated process. The period leading up to the bankruptcy, as your debts are building and you are coming to the realization that you will never be able to pay them, is the most stressful part of the process. The period of the actual bankruptcy may be stressful too, as there are many forms to fill out and deadlines to meet. However, now at least with a plan in place, many people find the actual bankruptcy much less stressful than the lead-up to it.

And then comes the discharge: a weight off the shoulders. Most of your debts have been discharged, and any that remain - such as a mortgage - are now manageable.

But your life doesn’t end with the discharge. You probably still have many questions about how this bankruptcy will affect your future. And you probably want to do your best in using this opportunity to truly get that new start: rebuilding your credit score, and working at accumulating some savings.

Here are some of the things you need to know about life after bankruptcy:

When do I get my discharge?

Your discharge will come as soon as your bankruptcy case has been completed. In the case of Chapter 7, this is usually three to four months after filing, and occasionally up to six months. In a Chapter 13, your discharge will come after you have completed your three- or five-year repayment plan.

Remember that you must complete your Debtor Education Briefing, and provide your certificate to the court, before your discharge will be issued. In some cases, you must appear briefly in court to receive your discharge, but in others your discharge papers will be mailed to you.

How do I know which debts were discharged and which I still owe?

In most cases, all of your unsecured nonpriority debts will be discharged. You will still be obligated to pay your priority debts, as well as any remaining balances owing on your secured debts. Examples of each of these types of debt are given in our article on understanding debt. If you are unsure about which debts you still owe money on, check with your attorney or your trustee.

Can my discharge be revoked?

A bankruptcy discharge can be revoked, but only if it is deemed that you were not honest when you filed your petition. For example, if you did not disclose assets or committed fraud when you filed, or if you are audited and fail to produce the requested documents, the bankruptcy court may revoke your discharge.

What if my creditors are still harassing me?

Your discharge is a permanent statutory injunction that prohibits your former creditors from undertaking any collection actions against you for your discharged debts. “Collection actions” include anything from harassing letters or phone calls to filing lawsuits designed to collect discharged debts.

If any of your creditors undertakes any sort of collection action on your discharged debts, they are breaking the law. You can file a motion in court to report the action and request that your case be reopened. Your creditor can be sanctioned by the court for violating the injunction, and they may be fined.

What if there are still liens on my property?

If you filed Chapter 13, liens will still be in place on any secured assets such as your home or your car. However, by the end of your repayment plan, you will be up-to-date on all of your payments. As long as you continue to make all of your payments on time, your lender will have no reason to initiate any collection actions such as foreclosure or repossession. Once you have paid out that loan in full, the lien will be removed.

If you filed Chapter 7, however, the story can get much more complicated. Although the debt associated with that secured loan (your mortgage or car loan) will have been discharged, the lien against that asset will still be in place. This means that your lender still has a security interest in your home or car and that, if you do not meet your repayment obligations, they can still act on that lien.

In other words, you must continue to make all of your scheduled mortgage payments or car payments, even though that debt has officially been discharged - or your lender can pursue collection actions such as foreclosure or repossession. In the case of your home, even if you continue making your mortgage payments on time, you will not be able to sell the home until you settle that lien. The rules here are fairly complex. Our article about Chapter 7 bankruptcy provides more detailed examples of what to do about liens in bankruptcy.

Will my bankruptcy affect my ability to get or keep a job?

There are laws in place which prevent employers from discriminating against debtors. Government and private employers may not discriminate against an employee solely because they are a debtor, or are or were insolvent, or have had debts discharged. Government employers may not discriminate against or terminate an employee because of their credit history. Private employers may not discriminate against an employee or potential employee solely because they have filed bankruptcy. (And, remember, you are not required to disclose information about your bankruptcy to any employer or potential employer).

Should I do anything about my credit report?

It’s a good idea to make sure that your bankruptcy has been reported accurately on your credit report. There are actually three different credit reporting agencies: Experian, Transunion and Equifax. You are allowed to get free copies of each of your credit reports every twelve months, and you can request those copies from all three agencies at: www.annualcreditreport.com. (They will provide your credit report, but not your actual credit score).

Check all three credit reports. Make sure that all of the debts that have been discharged are shown as being included in bankruptcy and discharged. If they are not shown as such, send a copy of the Schedule A form that you submitted as part of your petition, which lists all of your debts, as well as a copy of your discharge documents, to each of the agencies. Their addresses will be shown on the credit reports.

A Chapter 7 bankruptcy will remain on your credit report for ten years from filing, and a Chapter 13 will remain for seven years. The accounts that were included in the bankruptcy will be deleted seven years after the delinquency, which means that they are usually deleted from your credit reports before the actual bankruptcy is.

How do I rebuild my credit score?

If you take your finances seriously, and work at rebuilding your credit score, you can have a reasonably good score as little as two years after having declared bankruptcy. Steps you can take to rebuild credit score include making house and car payments on time, and working to improve your debt-to-income ratios. Starting to use credit, but using it responsibly, will bring your credit score up more quickly compared to not borrowing any money at all. For example, getting and using a secured credit card and making all of your payments on time will help raise your credit score.

Can I get a new mortgage after bankruptcy?

Even after a significant hit to your credit score due to bankruptcy, as a responsible borrower you can bring your credit score back up very quickly. As soon as two years following bankruptcy, it is possible for many borrowers to bring their credit score back up to 680 or higher, which is more than enough to get a mortgage. Guidelines are changing all the time, but at the current time, a person who has filed for Chapter 7 bankruptcy may qualify for an FHA mortgage as little as two years after their discharge, and for a conventional mortgage after three years.

For Chapter 13, the FHA will consider a person for a mortgage even if they are still in the midst of their repayment plan, provided that they have been making their repayments for at least one year, that they meet other requirements such as satisfactory employment history, and that the bankruptcy court approves.

If you would like to get a mortgage soon after bankruptcy, you should work very hard at raising your credit score, and at generating savings and avoiding any new debt, to increase your chances of being approved.

Moving forward

Bankruptcy is a process which opens doors. It is an opportunity to escape from the ever-downhill spiral that overwhelming debt can draw you into. Perhaps you made some poor decisions, or perhaps you simply ran into some bad luck. Either way, bankruptcy offers you a chance at a fresh start.

Don’t take this opportunity lightly. By the end of the bankruptcy process, you will have had some, or perhaps all, of your debts discharged. If you filed Chapter 13, you may now be paying down a home or a car - or both - that you were previously at risk of losing. Acknowledge that you are being given this second chance, and use this opportunity to learn from it.

Whether you filed Chapter 7 or Chapter 13, you were required to take the Debtor Education Briefing before your were granted your discharge. Don’t treat this course as just one of the hoops you have to jump through in order to get your discharge. Rather, use it as a starting point to educate yourself - on how to avoid falling back into debt, and how to actually build your net worth rather than reduce it.

You don’t have to avoid all debt no matter what. Some debt is good. Without the opportunity to borrow money, most of us would never be able to make major purchases such as homes or cars. But it’s important to learn how to judge in advance, before committing to high levels of debt, whether you can afford that debt on the long-term. It’s important to be educated about interest rates, and to learn to avoid high-interest debt - the kind of debt that grows and leads you down that path of no-escape - such as credit card debt and payday loans. Find a good book about personal finance and financial planning, and educate yourself so that you make wise decisions moving forward.

The bankruptcy process may have been stressful to go through. But now it is behind you. Now is the time to be grateful for the new opportunity that bankruptcy provides: your chance to learn from past mistakes and to begin again with a clean slate. Life after bankruptcy is indeed an opportunity to make a fresh start. Appreciate it, learn from it, and look ahead to your new life.

Read on for our Bankruptcy FAQs