Debt Recovery: What to Do After Bankruptcy

While bankruptcy provides a form of debt recovery that debtors badly need, it does not always solve all of a borrower’s problems. It may not be enough to file bankruptcy and begin living with a “business as usual” outlook afterwards. Filers should be aware of some of the responsibilities that will remain even before they file so they can be prepared and planning for life after bankruptcy.

What Bankruptcy Does Not Do

For most filers, there are debts that are not discharged or erased in bankruptcy. These are generally priority debts that the filer must continue to pay, whether they file for chapter 13 or chapter 7. These priority debts generally include:

• Many tax debts

• Federal tax liens

• Some retirement plans

• Personal injury or death judgments

• Cooperative housing fees

• Student loans

• Child support

• Alimony

• Fines and penalties for criminal acts

In addition, while many debts that are secured can also be discharged under chapter 7 bankruptcy and paid down or crammed down under chapter 13 bankruptcy, the lien holder may still repossess or foreclose on the property. That means that the debtor must generally reaffirm those debts if they wish to retain the property, such as a car or home. Then, it is essential that they continue to make those payments regularly to avoid losing that property.

Rebuilding Credit

Making regular payments that are due is essential to rebuilding good credit after a bankruptcy. However, it is important to remember that a person’s credit score is generally going to show the bankruptcy for ten years. Some lenders may be willing to offer credit long before that if there is evidence that the debtor has learned their lesson and it becoming a better credit risk.

There are several ways to restore credit, in addition to paying any existing debts regularly. First, as soon as possible, establish new, reasonable credit. That often means a secure credit card having a credit limit of an amount deposited by the cardholder. Using the card sparingly and paying it off every month can lay the groundwork for an unsecured credit card, possibly as soon as a year later. However, applicants must be sure to choose only reputable companies, since they could be in even greater financial trouble if they choose a fraudulent company.

Another key element in restoring credit is making sure the credit reports are correct at all times. This means making sure that good credit activity is faithfully reported and discharged debts are erased from the report.

Getting Legal Help with Debt Recovery

A bankruptcy attorney is not only essential to understanding bankruptcy laws and obtaining the greatest advantage from filing for bankruptcy, but they can help with the next steps a debtor must take to begin restoring credit after bankruptcy. It often takes wise financial advice and expert legal representation to obtain new credit after bankruptcy. In addition, there are legal means for inducing the credit bureau and creditors to provide correct information to the credit bureaus and ensuring the credit reports are correct. Without that kind of help, the debtor may find that all their good habits go for naught in terms of rebuilding a more positive credit score.