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Is Bankruptcy in Your Future? Five Things You Need to Know

Admin • Jun 28, 2021
Couple reviewing documents — Springfield, TN — The Law Office of Joe R. “Jay” Johnson, II

When you file for bankruptcy, many aspects of the process will likely be new and confusing to you. It helps to know the following five things about bankruptcy so you can avoid making mistakes.


You Will Not Lose Everything With Bankruptcy


One misconception you might have about bankruptcy is that you'll lose everything you have. This is not true, since you can go through bankruptcy and still hold on to things such as your home and car. It's even possible to maintain your existing retirement accounts if you have them. A lawyer can help ensure that certain assets are exempt from your bankruptcy, giving you some much-needed protection.


Your Credit Will Not Be Ruined Indefinitely


It is possible to recover from a bankruptcy filing and raise your credit. Keep in mind that it can take time to get your credit back to what it once was. At first, the offers you receive to open new lines of credit will not be great, but you will need to open credit accounts and prove that you are responsible when it comes to borrowing money.

Utilizing a small portion of your credit line and making payments in full is key to rebuilding your credit. This kind of responsible behavior shows that you're able to pay back your new debts and refrain from using up all of your available credit. If you filed the type of bankruptcy known as Chapter 13 bankruptcy, then after seven years there will be no record of a bankruptcy on your credit report.


You Don't Need to Miss Payments to Qualify


Another misconception about bankruptcy is that you must miss payments until you are able to qualify, an idea that is also not true. You may have recently gone through a major change in your life that is going to cause you to fall behind on your debts. Such a change could include the death of a spouse or the loss of a job.

If you need to file for bankruptcy even though you haven’t missed a lot of payments, you will be able to do so. Those who have little to no income may want to discuss Chapter 7 bankruptcy with a lawyer.


You Can Discharge More Than Just Credit Card Debt


While credit card debt is a common debt to discharge, you can free yourself of other debt as well. Your lawyer can let you know which debts will qualify, such as utility or medical bills. However, not all debts can be discharged. For example, you will need to pay any delinquent child support, and you’ll need to pay back your student loans.

In order to have debts discharged, you must list the creditor when filing for bankruptcy. This notification allows the creditor to be notified of the bankruptcy filing and prevents the creditor from trying to collect the money you owe them. Even if you may have a successful bankruptcy filing, you will still have to pay any debts you forget to list, so make sure you’re thorough when you file.


You Can’t Discharge Debt You Acquired After a Certain Point



After you decide to file for bankruptcy, you will be unable to take on new debt and then list them in your bankruptcy filing. For example, if you lose your job and then have to file for bankruptcy, you cannot open a new credit card account and purchase things you do not plan on paying for.

Your ploy will be discovered when officials see that the purchases align with your loss of employment, and then you will need to pay those debts off.

For help navigating the complexities of bankruptcy, work with The Law Office of Joe R. “Jay” Johnson, II.

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Many Americans struggle with debt, and while some minor debt can be easily repaid, a high debt-to-income ratio makes it hard to keep up on your bills. Bankruptcy is a process that allows you to discharge nearly all unsecured debt such as medical bills, car loans, home loans, personal loans, credit cards, and lines of credit. If you think you may need to file for bankruptcy, but you are scared, check out how it will affect your credit score and report, as well as your potential for new loans. It Will Cause Your Credit Score to Drop Your credit score is based on many factors, but one of the most important is payment history. In fact, payment history makes up 35 percent appears to be an empty link with target https://www.experian.com/blogs/ask-experian/credit-education/scorebasics/what-affects-your-credit-scores/ of your FICO® score. Lenders care about your payment history because it shows them if you are likely to miss payments or pay bills late. If they determine you are too high of a risk, they won't lend, or they will give you a huge interest rate. When you file for Chapter 7 bankruptcy, the process is relatively fast, but it's not immediate, and while you file bankruptcy, your attorney will advise you to stop paying the bills. This can cause your credit score to drop a few points or a few hundred points. Once you are out of bankruptcy, you can begin improving your credit score again. If you qualify for Chapter 13 repayment bankruptcy, your attorney will still instruct you to stop paying bills. However, Chapter 13 bankruptcy takes years because you must repay some of the money. For this reason, you can work on boosting your credit score before your bankruptcy has been discharged. It Remains on Your Report for Years Bankruptcy remains on your credit report for years so lenders can see that you may be a high risk. If you file Chapter 7 bankruptcy, it stays on your report for 10 years, but Chapter 13 bankruptcy only remains on your report for 7 years. Plus, lenders may be more inclined to lend to someone who recently filed Chapter 13 because they did repay some of the loan. Even if you have a bankruptcy on your credit report, you can find lenders who will trust you. The problem is that they will usually include a high interest rate to offset the high risk of lending to you. If your credit score is still high, despite the bankruptcy, they may be more inclined to give you a lower interest rate. Even though Chapter 7 can remain on your report for 10 years, the more time that passes, the easier you can get loans at fair interest rates. During this time, however, make sure to work on your credit score and pay all bills on time. This will help counteract the negative bankruptcy, making it easier to get better loan terms. It Can Prohibit You From Taking Out New Loans While not a good idea, you have the right to start racking up debt again once you are out of bankruptcy. Chapter 13 bankruptcy, however, can last three or five years. That's a long time, and during those years, you may have sudden expenses, such as the need for a new car or some home repairs. Unfortunately, taking out loans during your repayment plan can cause major problems, especially if you neglect to tell your attorney. It may also impact your repayment plan since the repayment plan depends on how much you can actually pay without financial constraint. If you suddenly have extra debt, you may not be able to repay your debt. You may think you can just save money for a few years, but while in Chapter 13 bankruptcy, you are not supposed to have too much cash. If the courts find out you have a large amount of cash, they will most likely force you to use it to repay some of the debt. Don't be ashamed to consider bankruptcy. It can be what you need to finally get out of debt. For more information about bankruptcy, contact us at The Law Office of Joe R Johnson, II.
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