For many households, small business owners, and retirees who are facing serious consequences due to debt, bankruptcy can be a practical way to hit pause, and get a fresh start on your financial life. Bankruptcy can be a way for you to discharge certain debts and restructure others, making them less of a monthly burden and giving you a chance to regain your financial footing.
And while bankruptcy can bring financial relief, there’s no denying that it can take time to work – and to move on after filing.
While Chapter 7 bankruptcy proceedings generally wrap up in a matter of months, consumers often have to liquidate some of their assets in order to repay creditors. Chapter 13 bankruptcy often takes three to five years, as consumers work with their creditors to develop a gradual, structured repayment plan. In both cases, going through the bankruptcy process is going to have some lasting effects. It will leave a mark on your credit report, impact your ability to make major purchases, and limit your ability to take on new credit lines and loans.
At the same time, though? Many people’s fears about the aftershocks of bankruptcy tend to be a bit overblown. There are many different myths and misconceptions out there about bankruptcy, and some of the most common are about what happens after the process is done. Many people fear that they’ll never be able to rebuild their credit, or that their bankruptcy stays on their report forever. Others worry that buying a home or financing a vehicle will now be out of reach, forever.
In reality, however? It’s important to remember that the goal of bankruptcy is to help you get out from under debts, and move forward – and so, in practice, the lingering effects of bankruptcy don’t have to be intimidating, and, in many cases, they certainly won’t impact your life forever.
In fact, get this: According to a recent report from The Street:
- 40% of Americans have a credit score of over 640 just one year after filing for bankruptcy, and 65% of bankrupt Americans see the same score (or higher) within three years after a bankruptcy
- Mortgage borrowers with scores between 720 and 739 three years after bankruptcy are offered similar APRs to those without bankruptcy
- The costs associated with a typical $15K auto loan are just $799 for borrowers who apply two years after a bankruptcy
What those stats – and so many other real life stories – tell us is that it’s certainly possible to get your financial life back on track, following a bankruptcy, if you take some shrewd steps before, during, and after the bankruptcy process.
Now, that doesn’t necessarily tell the whole story, and it’s important to remember that everyone’s experiences will be different. To flesh things out in a bit more depth, let’s tackle a few common FAQs about moving on post-bankruptcy:
“How long does a bankruptcy stay on my credit report?”
Broadly speaking, a Chapter 7 bankruptcy will typically remain on your credit report for up to ten years after date of filing, and a Chapter 13 bankruptcy will usually be reported for seven years. When you file for bankruptcy, you can realistically expect your credit score to be affected – typically, people with relatively good credit before bankruptcy may see their score drop more than those with comparatively poorer credit. However, no matter your circumstances, it is possible to take steps to immediately start rebuilding your credit during and after bankruptcy. We have more on that important topic available on our blog, here.
“How quickly can I finance major purchases after bankruptcy?”
After bankruptcy, many consumers wonder whether they’ll be able to qualify for financing for major purchases – more often than not, for some type of vehicle. While situations will vary, many consumers can start applying for financing within a year after filing for bankruptcy, though many people find greater success (and lower fees) if they wait longer.
“How quickly can I get a mortgage after bankruptcy?”
Broadly speaking, there is a home buying waiting period that comes with bankruptcy. Generally speaking, buyers need to wait four years to secure a conventional home loan after the discharge of Chapter 7, and two years after the discharge of a Chapter 13. However, in many cases, this “seasoning period” may be shorter. With FHA or VA financing, for example, many homebuyers may be able to secure a loan two years after discharge of Chapter 7, and a year or less after Chapter 13. It’s important to remember that different people will have different experiences.
In many cases, consumers will need to be able to make their case for why they’re able to take on new debt, and it may prove important to do a significant amount of research, compare different lenders and mortgage brokers, and look into loan and down payment assistance options on the state and local level.
“What are some steps I can take to move forward after bankruptcy?”
It’s key to remember that bankruptcy is a process. Before, during, and after filing, it’s important to stay active, and take positive steps. While bankruptcy is designed as a way to help individuals and businesses regain their financial standing and participate in the economy, it’s not going to happen overnight. Following bankruptcy, many people find that it helps to:
Take steps to move forward emotionally
As writer Lynnette Khalfani-Cox elegantly puts it:
“…beating yourself up about your predicament won’t make your situation any better. In fact, succumbing to a steady stream of negative emotions about your bankruptcy can even be harmful to you by preventing you from moving forward in a positive way. A better strategy: Resolve to make peace with the past by letting it go, and don’t dwell on negative thoughts or wallow in self-pity.”
Set a budget and make payments on time
Following a bankruptcy, one of the most important steps a one-time debtor can take is to set a realistic, practical budget, and stick to it. Making payments on time, not taking on new debts, and developing a stable financial routine helps prove to third parties that you’re fiscally responsible and trustworthy – while building habits to help you avoid severe debt issues again in the the future.
Work on rebuilding credit
While it is certainly possible to raise your credit score after bankruptcy, it will take concrete steps to help you get there. Many consumers work to rebuild credit by making bill payments on time, and keeping up with payments that were not discharged in bankruptcy. In other cases, it helps to get a line of credit and prove that you can use it responsibly and sparingly. Some common options include using a secured card, gaining authorized usership on a card, or having a co-signer.
Avoid developing new debts
In many cases, it helps debtors to develop a system that allows them to use cash, rather than credit. Take a look at your budget, and look for ways to reduce your bills and expenses, to make your payments more manageable and cut down on the risk of falling back into debt. Post-bankruptcy, many also develop a strategy to put more into their savings accounts, and build an emergency fund to cut back on the risk from a sudden financial setback.
Work with a professional
There are many resources out there for those looking at life post-bankruptcy, including certified financial planners and coaches, who can help filers to build their financial literacy. Before bankruptcy, debtors are generally required to take a financial counseling class. Your experienced bankruptcy attorney can also lend an important perspective and offer insights, before, during, and after bankruptcy.
Interested in learning more about bankruptcy?
Interested in learning more about bankruptcy and realistic financial planning as a way to leave debt in the past? Looking for a second chance? Curious about any of the ins and outs of bankruptcy here in Chicagoland? Drop us a line or give us a call today to keep the conversation going.
At Gunderson Law Firm, we strive to protect our clients’ assets to the full extent allowed by today’s laws throughout the complex bankruptcy process, helping them get the debt relief they not only need, but genuinely deserve. Moving through the bankruptcy process, we can also counsel you on realistic ways to avoid serious debt issues in the future. Whether you are a business owner, a wage earner, retired, or otherwise, our experienced attorneys and staff can address your specific situation with strategic plans to help put severe indebtedness behind you so you can enjoy life again.