Concerns About Life After Bankruptcy Discharge In Mesa, Arizona

There is a lot of information out there about the extensive debt relief benefits of declaring bankruptcy. There is no denying that triggering the automatic stay and discharging your financial burdens could be life-changing if you struggle with debt. But there are also consequences to filing for bankruptcy that might interfere with your financial goals for the future. For some of them, all you can do is inform yourself so you aren’t surprised by the restrictions you may face after discharge. For others, there are steps you can take to mitigate how much you are limited by them. And depending on your situation, post-discharge restrictions on bankruptcy debtors might have little to no effect on your life. Read on to learn more about the ways you could be affected by a potential bankruptcy filing after discharge. To schedule your free consultation with an experienced debt relief professional from Chapter Bankruptcy Law, call 480-405-1010. 

Buying a Home

While this already could have been a part of your larger plan, you will need to wait a while after bankruptcy before you can purchase a home. The waiting periods to buy a home after bankruptcy depend on the chapter of bankruptcy you file and the type of loan you wish to obtain. 

In chapter 7 bankruptcy, debtors wipe out unsecured debts in a process that generally takes around 4-5 months. The case becomes eligible for discharge 60 days after the 341 Meeting of Creditors. When the case is discharged is when the waiting period to qualify for a home loan begins running. Chapter 7 debtors who qualify for FHA loan or VA loans only have to wait 2 years from bankruptcy discharge to purchase a home. The waiting period for a USDA loan after chapter 7 bankruptcy is 3 years, and for a conventional home loan, 4 years. If a debtor files multiple bankruptcy cases within 7 years, the waiting period to qualify for a home mortgage increases to 5 years since the most recent discharge. 

Chapter 13 bankruptcy pays off debt instead of liquidating it like in chapter 7 bankruptcy. The waiting periods to qualify for a home loan are shorter for chapter 13 debtors for this reason. Conventional home loans have a waiting period of 2 years for chapter 13 debtors, but 4 years if their case ends in dismissal. FHA, VA, and USDA loans only have a waiting period of 1 year for chapter 13 bankruptcy debtors. If a post-bankruptcy debtor doesn’t want to wait for any of the periods described above, they can request the waiting period be reduced if the bankruptcy filing was caused by circumstances outside of the debtor’s control. The debtor should also be able to show that they can afford the mortgage payments after the home purchase.

Buying a Car

Buying a car after bankruptcy isn’t nearly as restrictive as buying a home. Some bankruptcy debtors may be allowed to purchase a vehicle before their cases are even discharged. Chapter 7 bankruptcy debtors only need to wait a matter of months for their cases to be discharged, which can be a great time to purchase a new vehicle and rebuild credit. An auto lender doesn’t have to keep reporting a post-bankruptcy debtor’s car payments in a way that affects their credit score positively, but will be sure to report any late payments to the credit reporting bureaus. A bankruptcy debtor can take advantage of their filing by surrendering their vehicle and getting a new one, ideally at a better interest rate. If the debtor can’t wait until discharge to purchase a new vehicle, some dealerships will work with debtors in active bankruptcy cases. A chapter 13 bankruptcy debtor will need permission from the trustee to purchase a vehicle during their 3 to 5-year payment plan. Payments on a vehicle could throw off the debtor’s budget so that they can’t afford other mandatory debts in their payment plan. 

Credit Score

Post-bankruptcy credit is a huge concern for many debtors. Bankruptcy can resolve immediate debt problems, but if it destroyed a debtor’s credit permanently, they would face obstacles and setbacks for life that would probably make bankruptcy not worth the effort. But filing for bankruptcy doesn’t necessarily destroy credit as many assume. When a debtor’s credit score falls dramatically immediately after filing for bankruptcy, it is typically because they were current on payment for accounts being reported to the three bureaus. Eliminating those current accounts causes one’s credit score to fall. But if the debtor is in default on several accounts when they file for bankruptcy, eliminating those accounts could cause the opposite effect. How bankruptcy affects a debtor’s credit score in the short term can’t be guaranteed. But there are things a debtor can do after discharge to improve their credit in the long term. 

Improving Credit After Bankruptcy

Credit cards are a factor behind many bankruptcy filings, but they can also be used to improve credit after discharge. Debtors’ mailboxes will be flooded with offers for new credit cards after their cases have been discharged. Choosing carefully, spending wisely, and making timely payments can help improve a post-bankruptcy credit score. A debtor who is reluctant to open traditional credit cards can try out a secured credit card. This is a prepaid credit card, usually through one’s banking institution, that slowly builds credit over time. They could also ask to be added as an authorized user to someone else’s credit card. Signing up for credit reporting whenever possible, like for rent payments or monthly streaming services, can help boost a credit score after bankruptcy discharge. 

Who Will Know About Your Bankruptcy?

You might be prepared for financial repercussions after a bankruptcy filing, but what about the social and emotional ones? Certain parties must be informed about your bankruptcy filing- you’ll know who based on your creditor mailing matrix. If you don’t plan to clear any rent-related debt in your bankruptcy, be sure to omit your landlord from your creditor mailing matrix. Friends and family should only find out if you owe a personal loan to them, which would mean they need to be on the matrix. However, bankruptcy is a matter of public record, so anyone could search for your filing on the internet. We recommend telling as few people as possible so no one you know has reason to conduct such an internet search. 

Prepare For Bankruptcy In The Present & The Future with Our Mesa Debt Relief Team

Some debtors file for bankruptcy thinking of only the immediate relief it will bring, like if their wages are about to be garnished or their vehicle repossessed. Others file thinking of the larger picture, or how bankruptcy can help them wipe the slate clean and rebuild credit. A debtor can have both when they file with a high-quality bankruptcy firm. At Chapter Bankruptcy Lawyers, our team helps residents of Mesa and the surrounding areas gain control of their finances by clearing their debts. We make the process simple with straightforward guidance, convenient appointments by phone, and flexible payment options starting as low as zero dollars down. When you’re ready to learn more with your free phone consultation, call 480-405-1010.