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How Bankruptcy Affects Your Financial Future

Published January 24, 2023 by Sasser Law Firm
How Bankruptcy Affects Your Financial Future

The decision to declare bankruptcy is a difficult one. But it is often necessary for those facing overwhelming debt, giving them a chance at a fresh financial start. Bankruptcy can have consequences that affect your finances.

For more information about how bankruptcy can affect your financial future, how to rebuild your credit after filing for bankruptcy, and how a bankruptcy lawyer can help, contact Sasser Law Firm today for a free consultation.

How Long Does Bankruptcy Affect You Financially?

Filing for bankruptcy can have wide-ranging consequences on your financial future, the specifics of which depend on which chapter you file under. The two most common types of bankruptcies are:

  • Chapter 7 bankruptcy In chapter 7 there is potential for the loss of non-exempt assets so that proceeds can be applied to pay creditors. In most chapter 7 cases the debtor is able to exempt all of their assets and as such most chapter 7 cases are “no-asset” cases. A chapter 7 is on your credit report for 10 years. Normally a debtor can obtain credit cards and auto loans soon after bankruptcy albeit on less favorable terms than someone with good credit. A debtor normally has to wait 2 years from discharge to qualify for a conventional loan without the assistance of a co-borrower with good credit.
  • Chapter 13 bankruptcy Known as reorganization bankruptcy, Chapter 13 involves restructuring your debts and creating a plan to pay them off over a certain time period rather than selling any of your assets. A Chapter 13 filing can remain on your credit report for up to seven years.  As with chapter 7, after the filing of a case, the debtor’s ability to access quality credit may be limited for the first year or two with the situation steadily improving as the debtor uses consumer credit and timely pays on his or her accounts.

No matter which type you decide on, the relative impact on creditworthiness will be a function of how good the credit score is prior to the bankruptcy. If the credit score is already poor then the effect will be minimal. Also, future creditworthiness may be of little import to some and of significant import to others.

Applying for Loans After Bankruptcy

The main thing to remember when applying for a loan after bankruptcy is that your credit score may be different than before. You will likely be able to find lenders who are willing to work with you. However, in some instances, a creditor will charge higher interest rates and/or require larger down payments.

It’s important to remember that bankruptcy will stay on your credit report for 7 to 10 years. You will need to focus on rebuilding your credit during this time by making regular payments on time and keeping your balances low. You will want to have 2-5 consumer cards that you use and make timely payments on to rebuild your credit score with.  It is a good idea to be conservative and responsible with your credit card usage.

Another important factor to consider when applying for a loan after bankruptcy is the type of loan you are applying for. Most lenders are more likely to give out small credit cards, secured personal loans, and other types of smaller loans to people with “dinged” credit. If you are looking for a mortgage loan, you may need to wait until your credit score has improved.

Reorganizing How You Approach Your Finances After Bankruptcy

Debt problems can feel challenging. Hopefully, bankruptcy allows you more structure and peace of mind about the obligations (e.g., rent, utilities, food, clothing, insurance, etc) and remaining debts (e.g. house loan, car loan, student  loan, etc.)

A good start in reorganizing your finances after bankruptcy is creating a budget to help you keep track of your expenses and ensure that you are spending what you can afford. Be sure to include savings goals in your budget so that you can begin building up your savings accounts and ensuring financial security.

You may also need to review your credit score and consider getting a few credits card/loans. This can help you rebuild your credit and show lenders that you are responsible and capable of handling debt. With responsible financial management, you can rebuild your credit over time.

How Can an Attorney Help?

An experienced bankruptcy attorney can help you understand the consequences of filing for bankruptcy, determine which chapter best suits your needs, and help you navigate the paperwork and court proceedings associated with the process. At Sasser Law Firm, we understand that considering bankruptcy can be stressful. We are dedicated to providing quality legal representation and helping our clients make the best decisions for their financial futures. Our attorneys will explain the consequences of filing for bankruptcy and work with you to explore options in your best interest. We will answer any questions you have about the legal requirements of filing for bankruptcy, such as understanding credit scores, developing a repayment plan, and working with creditors.

At Sasser Law Firm, we are proud of our over 20 years of experience and the 10,000 individuals and small businesses we have helped through bankruptcies and other financial hardships. Contact us today for a free consultation to learn more about how we can help and what options may be available to you.

Consultations can be done over the phone or in person or by video.

This post was originally published on April and has been updated for accuracy and comprehensiveness on January 2023.

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