What Happens After Bankruptcy?

Find out what to expect after completing the bankruptcy process.

When you’re deciding whether it makes sense to file for bankruptcy, there’s a lot to consider. Of course, you’ll want to understand how Chapter 7 or Chapter 13 will benefit you. But it doesn’t end there. It’s also important to know what to expect afterward. Here’s what happens after bankruptcy.

Fresh Start

Your new life begins after the court notifies your creditors that you received a discharge order wiping out your qualifying debts. Those creditors won’t be able to sue you, garnish your wages, attach your bank account, call you, or send you mail about the forgiven balances. You’ll get your fresh start.

Be aware, however, that it’s not uncommon for a creditor to inadvertently attempt to collect a debt that was forgiven as part of your bankruptcy. If that happens, here’s what to do: Keep your bankruptcy paperwork handy. Most will stop calling once you give them the case number, filing date, and discharge date. If the calls persist, notify your attorney.

Credit Changes

Most people understand that their credit will take a hit for a time after bankruptcy—and there’s no denying that the change will likely affect your financial life. Your credit report tells creditors, employers, insurance companies, and potential landlords about your finances and they use the information to determine whether to work with you.

There’s an upside, however. Although a bankruptcy filing will remain on your credit report for up to ten years, the impact on your credit score will lessen with time.

Here’s what you can expect:

  • Your credit score will likely decrease, but not necessarily.
  • Credit card companies will send you credit offers soon after you receive your discharge.
  • Purchasing a car on improved credit terms should be within reach within a year or two.
  • Your chances of renting or leasing housing from a professionally-managed company (such as an apartment complex) will improve after approximately two years (until then, consider a cosigner or a private party rental).
  • Most people qualify for a mortgage within four years of bankruptcy, possibly even sooner if a foreclosure wasn’t involved and the bankruptcy was due to an unavoidable circumstance (such as divorce or illness).

Of course, how you handle your credit after the bankruptcy will also play a role in your creditworthiness, and you can proactively take steps toward improvement.

Rebuilding Process

After receiving your discharge, you shouldn’t have as many financial obligations, and you can use the extra money to keep your finances in the black. Here are a few ideas:

  • Budget. Start with a budget that includes funds for emergencies such as car and home repairs and medical expenses.
  • Save. Pay yourself by saving for retirement. For instance, it’s often smart to be sure you are taking full advantage of any employer matching funds by maximizing your 401k and 403b contributions.

After your financial affairs are in order, consider whether you need a will, a living will, a health care power of attorney, or a general power of attorney. A little planning and discipline will go a long way toward protecting you and your family’s financial future.

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