Contrary to what many people think, filing for bankruptcy may be good for you and improve your financial situation. Chances are that if you are considering bankruptcy, your credit is already suffering, and you are probably sick of being harassed by bill collectors and creditors, and faced with possible wage garnishments, evictions, lawsuits, and foreclosures.
Not only does all that activity stop with bankruptcy, but bankruptcy can help your credit. Many of your debts will be eliminated, and although there will be an initial setback in your credit rating, after bankruptcy credit starts to rebound quickly, and you will typically wind up with an improved credit score.
The experienced and compassionate Ohio bankruptcy attorneys at Fesenmyer, Cousino, Weinzimmer understand that financial problems can happen to the most hard-working and well-intentioned people. We offer a free consultation to examine your individual financial situation, your debts, and your goals. Should bankruptcy be your best option, we will help you get on the path to financial solvency and find the best ways to make sure your credit recovers as quickly as possible.
Contact us online or call to set up your free consultation today.
Types of Bankruptcy
The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 will discharge (eliminate) most or all consumer debts so they do not have to be paid. Chapter 7 is over in a few months and you can begin rebuilding credit quickly, but it will remain on your credit report for 10 years.
Chapter 13 is a reorganization plan that allows you to consolidate your payments to avoid fees and fines and repay some or all of your debt affordably over a three to five-year period. If you successfully complete the payment plan, the debts covered by the plan are discharged. Chapter 13 will remain on your credit report for seven years.
Bankruptcy and Credit Scores
According to researchers at the Federal Reserve Bank of Philadelphia, Equifax credit bureau credit scores typically plunged in the 18 months before filing bankruptcy, but rose steadily afterward.
For example – Equifax found the average credit score for someone filing Chapter 7 in 2010 was 538.2, but within six months, their average score rose to 620.3. For Chapter 13, those who completed their repayment plan and got a discharge had scores that rose on average from 535.2 to 610.8.
Other Benefits of Bankruptcy
Improved credit scores are just one reason to consider filing for bankruptcy. Others include:
1) Discharge of certain debts
Chapter 7 bankruptcy wipes out many kinds of debt, including:
- Credit card debt
- Medical bills
- Personal loans
- Civil judgments (except for fraud)
- Past-due rent
- Past-due utility bills
- Business debts
- Some older tax debts
There are some debts, such as child support and recent tax debt, that bankruptcy does not eliminate, but by having major categories of debts wiped out, you will better be able to pay the debts that remain.
2) Automatic Stay
Once you file for bankruptcy, the “automatic stay” provision halts almost all collection efforts. Harassing phone calls and letters stop, as do threats of lawsuits and wage garnishment, which end completely once the underlying debt is erased.
3) Better access to credit
The researchers found that people who have completed bankruptcy are more likely to be granted new credit lines within 18 months than are people who fell 120 days or more overdue but didn’t file. After bankruptcy, you may be in a better position to get credit because you reduce your debt-to-income ratio. Also, because you won’t be able to file Chapter 7 again for another eight years, or Chapter 13 for two to four years, you may appear to be a better risk.
If you want to refinance your home, Chapter 13 homeowners may be eligible to refinance after a year, while Chapter 7 homeowners will be eligible two years from the date of discharge.
Improve Credit After Bankruptcy
Once you have filed for bankruptcy, there are things you can do to help your credit improve:
- Know Your Credit Score — You can check it for free at myBankrate or com’s free Credit Report Card, and you can request one free copy of your credit report per year from Equifax, Experian and TransUnion at AnnualCreditReport.com. Make sure there are no errors or inconsistencies and report any you find.
- Slowly Apply for Credit — If you need to establish new accounts, start by getting a secured card. Deposit money into a secured account at a bank which will give you a credit card with a credit line that’s 50% to 100% of the deposit. Once you have a positive use record, you may be eligible for a traditional card.
- Pay Bills on Time and in Full — Pay bills as soon as they come in. Set up automatic payments whenever possible to pay bills every month by the due date. Don’t charge anything you can’t pay off immediately.
- Keep Credit Cards Open — Closing them leads to lower credit scores. Keep the cards open, but don’t use them or cut them up if you’re tempted to spend too much or can’t pay your balances off immediately.
Contact Us For Help You Can Trust
Going through bankruptcy is difficult, but with help and guidance you can rebuild your credit and your life successfully. The seasoned and compassionate Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand the issues and the difficult decisions involved. We provide our clients with a high level of personal service to help you deal with your financial problems, make better choices in the future, and decide on solutions that make sense in your individual case.
Contact us at one of our office branches for a free consultation so we can determine what debt relief solutions will work best for you.