So Now What?
Bankruptcy is suppose to be a fresh start, right? So why are things still so hard?
Chapters 7 & 13 Bankruptcy provided you a variety of debt relief:
- stopped collection efforts, including most lawsuits
- erased unsecured debt such as credit card debt
- cancelled some types of liens
- allowed you to reaffirm selected debt
- eliminated some tax penalties and interest (but not the tax itself)
- concluded with a permanent discharge order
What have you done?
You did two things when you filed bankruptcy.
The first thing you did was seek protection from creditors in the bankruptcy court. The vast majority of people who do so are in need of that protection. They need relief from collection agencies, from mortgage lenders, miscellaneous other creditors, and the credit card companies who will never stop hounding them unless they are forced by the courts go away.
The second thing you did was make a very public announcement that you owed more money than you could repay. You made a public declaration of insolvency. But the public announcement does not have an explanation attached to it. As Shakespeare said, there’s the rub.
The public announcement is reported to the Credit Reporting Agencies (“CRA”). They report it, and the bankruptcy becomes a part of your public credit profile or credit history. It stays there for seven to ten years or more, depending on the type of bankruptcy case you filed. You may have to discuss it with employers for years after that.
Generally speaking, the effects of bankruptcy are worst in the first two to five years immediately after your case is concluded and you receive a discharge.
Lenders do not like bankruptcy for all of the obvious reasons. Explanations are worth very little at this time, because everyone has an explanation. Also, explanations about the past are not necessarily helpful to understand what you are going to do with your future. Along with the negative history comes a low credit score.
Then, adding insult to injury, the creditors and collection companies are notoriously sloppy about the way they report your account after bankruptcy. There are ways that your account is supposed to be reported; for example, a credit card account should have a zero balance after bankruptcy. Many times a creditor will continue to report you owing the full balance that was owed at the time you filed, some creditors will continue to add interest and report that you owe more.
Add all these things together and you have a big obstacle between you and your goal of rebuilding your finances and re-establishing good credit. It is made worse by the numbers of companies interested in your credit profile/score. You are fighting to get back on your feet and make a fresh start, then you learn that you are going to have to pay more for car insurance and that your options for places to live are limited.
Some people get frustrated. Many think bankruptcy creates burdens they can do nothing to improve for many years. Fortunately, this is not the case.
You CAN do something.
You can do things to improve your recovery from bankruptcy. You need a plan, a map to your goal, but before you can make that plan you need to understand your credit report. because cleaning up your report is your next big step.