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 all of your unsecured debts, like credit card and medical debt. However, you’ll still be on the hook for certain debts, such as student loan and tax debt.
2. Keeping Your House
It is often considered a big no-no to refinance your home to pay your credit card debt, or conversely, to pay for your home with credit card debt — the latter is paying off secured debt (your homestead, which may be exempt property in a Chapter 7 bankruptcy depending on equity) with unsecured debt. Unsecured debt is dischargeable in a bankruptcy, and paying off secured debt with unsecured debt also can be seen as an act of bad faith when filing for bankruptcy. Refinancing may also put you at risk for foreclosure.
When you file for bankruptcy, you’re protected by the automatic stay, which stops foreclosures, lawsuits, and harassment from collectors.
See also: California’s Foreclosure Timeline
3. Not Having to Dip into Retirement Funds to Pay Bills
When you file for Chapter 7, your retirement and Social Security benefits will be exempt from your bankruptcy estate. In addition to keeping all that hard-earned money for retirement, bankruptcy can also benefit seniors through estate planning. Many seniors are judgment-proof because most, if not all, of their assets can be protected by bankruptcy exemptions and therefore they can get rid of their unsecured debt (like medical debt, which is most common) while still being able to pass on their property to their loved ones.
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 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 you feel obligated to pay back Uncle Mike for that personal loan he gave you, you generally want to do it after bankruptcy. 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. This is a slippery-slope situation best advised by a bankruptcy attorney.
Speaking of family, should you be filing bankruptcy with your spouse — or looking to get a divorce at some point while struggling to pay back debts — there is a light at the end of the tunnel of love. For those considering divorce before or while filing for bankruptcy, going through bankruptcy together first can generally make it easier to divide property in the divorce, but every case is different so if you’re going through a divorce and bankruptcy at the same time you’ll want to consult with an experienced bankruptcy attorney to make sure you’re timing everything correctly.
5. Rebuilding Your Credit — and Your Budget
The biggest thing that takes a hit during bankruptcy is your credit score, but luckily, that starts to be on the mend as soon as you file for bankruptcy. Negative credit information falls off your report generally after 7 years, including paid or released tax liens (10 years for unpaid). A bankruptcy will stay on your credit report for up to 10 years after the filing date.
In California, the statute of limitations on debt — how long creditors have to come after you for your debts — is 2 to 4 years depending on the type of debt. So, you’ll only have to wait a few years for that negative information also to be removed from your credit report.
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 sort 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!
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