Making the Most of Your Bankruptcy Discharge
Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Bankruptcy can help with some financial problems, but it does not guarantee you will avoid future financial problems. If you choose bankruptcy, you should take advantage of the fresh start it offers and make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again.
How Long Will Bankruptcy Stay on My Credit Report?
The results of your bankruptcy case will be part of your credit report for ten (10) years. The ten years are counted from the date you filed your bankruptcy. This does not mean you can’t get a house, car, loan, or credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems? Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not owe anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to obtain credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.
Which Debts Do I Still Owe After Bankruptcy?
When your bankruptcy is completed, many of your debts are ”discharged.” This means they are canceled and you are no longer legally obligated to pay them. However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:
- Alimony, maintenance, or support for a spouse or children.
- Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an ”undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy. For example, the school closed before you completed the program or perhaps you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them. For more information, look at the NCLC Guide to Surviving Debt.
- Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so they agree to reaffirm the debt. You should never agree to reaffirm a debt if you haven’t done anything wrong. If the company files a fraud case and you win, the court may order the company to pay your attorney fees.
- Most taxes. The vast majority of tax debts cannot be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss them with your attorney.
- Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
- Drunk driving injury claims.
Do I Still Owe Secured Debts (Mortgages, Car Loans, etc.) After Bankruptcy?
Yes and No. The term ”secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.
The creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.
For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.