Choosing to file for Chapter 7 or Chapter 13 bankruptcy is a serious step best made with the help of a bankruptcy attorney. Bankruptcy has many long-term effects to consider before making a final decision.
Although bankruptcy offers debtors a way to get debt discharged (Chapter 7) or to pay their bills (Chapter 13), it still has a lifelong impact. With the help of an experienced bankruptcy lawyer, advantages can be maximized and adverse consequences minimized.
Employment
Employers are prohibited from firing anyone who files for bankruptcy under U.S.C. Sec. 525. The Illinois legislature recently passed a law that prevents employers from discriminating against job applicants based on credit history, with the exception of banks, insurance companies and certain government agencies.
A prospective employer may ask an applicant whether they have ever filed for bankruptcy. Those who have may be denied management positions, especially positions with salaries over $75,000 per year.
Renting a Home
Renters with steady employment are usually not denied housing based on bankruptcy. However, they may be asked to pay a higher deposit.
Credit Score
Bankruptcy appears on the credit report for 7-10 years, adversely affecting credit score and available credit. The good news is that there are many ways to rebuild a credit score.
When payments on non-discharged debts like mortgages and auto loans are made on time, it helps to rebuild credit because these lenders continue to report to credit bureaus.
A secured credit card can also help rebuild credit. Similar to debit cards, secured cards offer a credit line equal to a predetermined deposit. For a credit card with a $300 limit, a deposit of $300 is paid to the credit card company and held in escrow to secure purchases. Although these cards may charge fees, they report to credit bureaus, whereas debit cards do not, offering another opportunity to rebuild credit by paying on time.
Unsecured credit cards, auto loans, even mortgages are not impossible to get after a bankruptcy, but the lower the credit score, the higher the interest rate. As the credit score improves, interest rates become lower.
When determining a credit score, credit agencies pay more attention to recent behavior than past behavior. Thus, the longer someone with a bankruptcy makes payments on time, the more their credit score improves.
Loans & Life Insurance
Applicants for loans and life insurance over $150,000 may be asked if they have ever filed for bankruptcy.
Offers of Credit
Lenders may offer those with a bankruptcy easy credit at outrageous interest rates. These offers usually have strings attached that can put unsuspecting consumers in the same position they were in before filing for bankruptcy. Reviewing credit offers with an Illinois bankruptcy attorney can help debtors make credit choices that support financial solvency.
Credit Counseling Organizations
Anyone with unmanageable debt should beware of credit counseling organizations. Some of these companies are untrustworthy. They can cost more than a bankruptcy and it can take longer to rebuild the credit score. The IRS has taken action against numerous “nonprofit” agencies for claiming they could help people who are in debt.
A Life-Changing Event
Even though a bankruptcy offers debtors financial relief, it’s not a quick fix. The top five most devastating events in life are divorce, disability, severe illness, loss of a loved one and bankruptcy.
In a 1934 decision, the Supreme Court stated that bankruptcy “gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”
All in all bankruptcy will have a long lasting impact on your life. However, an experienced bankruptcy lawyer can help those in need use this opportunity to their best advantage, both now and in the years to come.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.
