If you’re struggling with debt and you live in Los Angeles, you may have considered bankruptcy before. If this is your first time filing for bankruptcy, you might be wondering: Just what will life be like after bankruptcy?
Life, surprisingly, can be very good after bankruptcy! Particularly if you retain the services of a qualified Los Angeles bankruptcy attorney who can help get your bankruptcy discharge. With the right attorney you might be looking at post-bankruptcy life just 3 to 4 short months after filing for Chapter 7. If you’re filing for Chapter 13, which requires a repayment plan, it’ll be three to five years. Still, not bad!
Below, we’ll go over five things you can look forward to after getting your bankruptcy discharged.
Remember: Filing bankruptcy without an attorney (pro se) greatly reduces your chance of having your debts discharged, so make sure to consult with a bankruptcy attorney. Contact Borowitz & Clark today for a free, no-obligation consultation.
1. No Longer Having Medical or Credit Card Debt
It’s shocking how much medical debt has an effect on Americans, but it’s typically the No. 1 reason people file for bankruptcy. If you qualify for Chapter 7 bankruptcy, referred to as a “liquidation” bankruptcy, it wipes out most of your unsecured debts, like credit card and medical debt. Some types of debt, such as student loan and tax debt, are treated differently. But, that doesn’t necessarily mean they aren’t dischargeable. Some types of older tax debt can be discharged. And new guidance issued in 2022 has made it easier for many borrowers to discharge federal student loan debt.
The bottom line is that life after a bankruptcy discharge involves less debt, fewer monthly payments, and an end to collection calls from medical providers, credit card companies and other unsecured creditors.
2. Keeping Your House
You probably think you’d never do anything to put your home at risk. Still, many people–with the best of intentions–refinance or take out home equity loans to pay off debts like medical bills. Most don’t even realize they are turning unsecured, dischargeable debt into secured debt. That means refinancing can put you at risk of foreclosure.
When you discharge unsecured debt in bankruptcy, you eliminate it rather than turning it into a more dangerous type of debt. And, if you’re falling behind on your mortgage, getting out from under the unsecured debt can free up funds to keep up those payments.
See also: California’s Foreclosure Timeline
3. Not Having to Dip into Retirement Funds to Pay Bills
When you file for Chapter 7, your Social Security benefits and most retirement accounts will be exempt from your bankruptcy estate. Discharging debt can also be beneficial for your loved ones. Even if you’re “judgment proof” during your lifetime because all of your assets are exempt, your estate will be responsible for your debts. Debts must be paid or settled before any property passes to your heirs. That can cut into any inheritance you leave behind, perhaps even forcing the sale of the home you planned to pass on to your children. Debt that’s discharged in bankruptcy won’t come back to haunt your heirs during the probate process.
That said, no matter your age, make sure to never borrow from your retirement account. It’s not a good idea! It’s an asset that is largely protected from liquidation in a bankruptcy, and also from lawsuits. The fee to withdraw from a retirement account early also isn’t worth it, and once you pull the money out, it can open it up to creditors.
4. Paying Back Family Members
If a family member gave you money for a house down payment, or to help you with bills, and you paid them back within a year before filing for bankruptcy, the bankruptcy trustee can take back that money and plop it into your bankruptcy estate. That can create a financial crisis for your loved one and hard feelings in the family.
You must list debts to your family and friends in your bankruptcy petition, just like any other creditor. And, those debts will be legally discharged. But once your bankruptcy is over and your cash flow is improved, you are free to voluntarily pay back any creditor, including your family.
Speaking of family, if you’re considering both bankruptcy and divorce, you should seriously consider. filing bankruptcy with your spouse. While you may not be eager to cooperate with your soon-to-be-former spouses, going through bankruptcy together first can eliminate many marital debts before you slog through the process of dividing them up, and may make it easier to divide property in the divorce. Talk to your Los Angeles bankruptcy lawyer about the pros and cons of filing together while you’re still married.
5. Rebuilding Your Credit — and Your Budget
If you’ve filed for bankruptcy, your credit score has probably taken a hit–in most cases, long before you filed. Luckily, that can start to turn around as soon as you file for bankruptcy.
Most negative credit information falls off your report after 7 years, including paid or released tax liens (10 years for unpaid). A Chapter 7 bankruptcy will stay on your credit report for up to 10 years after the filing date, and a Chapter 13 case for up to 7. But that negative information has less and less impact as time goes by, especially if you are handling your money responsibly after bankruptcy and building up a positive payment history.
While rebuilding your credit, make sure you budget for all of life’s expenses, big or small. Pay all of your bills on time, make more than just the minimum payment on credit cards, and start a small savings account for emergencies. Check your credit report each year from each of the three credit reporting agencies, and consider signing up for Mint, WalletHub, or Credit Karma, which help monitor your credit score and/or give you financial goals to work toward. These sorts of apps also connect to your bank and credit card accounts, so they are able to automatically suggest deals that would lower your credit card interest rates, and more.
Good luck, and happy saving!