What about my Credit Rating? A bankruptcy filing is reported by various credit reporting companies. Federal law limits the length of time that this information may be carried on a report to ten (10) years. A bankruptcy shown on a credit report will adversely affect one’s credit. Credit can be reestablish their credit over a reasonable period of time by promptly making the payments on reaffirmed debts. Many debtors exiting bankruptcy find that they can improve their credit score into the high 600s in approximately two years and to above 700 within three years by responsibly handling debt payments. Can I borrow money to buy a car or house after my bankruptcy case is completed? The answer is yes. Your ability to obtain credit at any time is normally based upon three (3) factors. Those factors are: 1. your ability to repay the loan, 2. the creditor’s collateral position, and 3. your credit history or credit score. Filing a bankruptcy does not mean that you cannot obtain credit at all even immediately after completion of the case. Individuals that show the creditor that they now have the ability to repay a loan can obtain the credit necessary to purchase it. What is the difference between filing bankruptcy under Chapter 7 and Chapter 13 of the Bankruptcy Code? Chapter 7: This is a liquidation bankruptcy, sometimes called “personal bankruptcy”. The principle advantage is that the debtor comes out without any future obligations on his discharged debts. The debtor gets a “fresh start.” However, bankruptcy does not wipe out most mortgages or liens. If a debtor wants to keep an item (Ex: house or car) which is security for a loan, the debtor must continue these payments. If the debtor wants to discharge a car loan, this is accomplished by surrendering the car to the creditor that holds the lien. A chapter 7 debtor receives a discharge of his obligations to pay his debts, with some limited exceptions. Bankruptcy will not discharge or wipe out most taxes, most school loans, child support or alimony and some other debts. The key word is most taxes and most student loans (thus, a review of your situation to determine if your student loans or taxes can be discharged is important.) The ability to discharge such debts as taxes and school loans depends upon the age of the loan and numerous other factors. Thus, a complete review of each client’s debts must be made to determine what debts, if any, will remain after discharge. Chapter 13: In a Chapter 13 proceeding, the debtor is required to pay all or part of his debts from the future income over a period of three to five years through his chapter 13 plan. A monthly payment is made to the Chapter 13 Trustee which consolidates your debts. For some people, the time period must be five years. If the court approves the plan of payment, the payment of debts you make to the Chapter 13 trustee will be paid in full or partially by the chapter 13 trustee to your creditors. Most of the debt that is not paid as set forth by the plan of reorganization will be discharged or wiped out. In other words, if your plan only provides for payment of 10% of the unsecured debt, then the remaining 90% plus any accrued interest will be discharged or wiped out upon completion of your plan. If your plan provides for payment of no money to unsecured creditors, then the entire unsecured debt is discharged upon completion of the plan. However, most long term debt and home mortgages must be paid in their normal monthly payments either through or outside the plan, except for the payments that were due upon the filing of the case. Example: If a person is behind by 3 payments at filing and the house note was $500.00 per month, then the $1,500.00 plus any late charges or other fees can be spread out through the plan. Upon completion of the plan, the long term debt will be current and the ongoing payments will continue. It is imperative that you provide your attorney with a copy of the Deed of Trust and any correspondence from your current mortgage company to evaluate if you have been a victim of mortgage fraud. The bankruptcy plan can be approved, if it proposes to pay the debtor’s disposable income over the life of the plan, even if the creditors do not agree with the plan. In most cases, the plan payment will be less than the combined payments of the debts prior to filing, and the debtor can retain all of his assets provided he makes the payments as required and maintains insurance on items, such as his home and car which are security for loans being paid through or outside of the plan.