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Wednesday, September 17th, 2008

by Theodore Sliwinski, Esq.

How does Bankruptcy Affect Your Life?

Bankruptcy is an option for people who find themselves in over their head in debt. Many times, hard-working Americans become  overwhelmed debt because of a nasty, illness or a loss of employment. If you find yourself in a financial catastrophe, then sometimes bankruptcy is the best and only option for you. Bankruptcy will allow you to develop a reasonable plan to repay your debt, or to have your debt discharged through an orderly liquidation of your assets. When you consider filing for bankruptcy, it is extremely important to research whether bankruptcy is your best option. Filing for bankruptcy should not be taken lightly because it may affect many aspects of your life. You should consult an experienced bankruptcy attorney about bankruptcy and its impact on your life.

It is critical to understand that bankruptcy provides you with a golden opportunity to rebuild your credit. However, it does not provide you with a clean slate. What bankruptcy can accomplish is  that it gives you the opportunity to start your life over. Your past debts will be discharged, and you will have the opportunity to live a debt free life. The collection calls will stop, most of your collection letters will stop, you will not have to worry about having your paycheck garnished, and your bank account will not be seized. However, there are still some drawbacks to filing for bankruptcy. A bankruptcy will adversely affect your credit report. Thus, it will be more difficult for you to reestablish good credit, although not impossible.

If you file bankruptcy, then it will appear on your credit report for 10 years if you filed chapter 7, and it will appear on your credit report for 7 years if you filed chapter 13. If you have a bankruptcy on your credit report then this information has the potential to affect your ability to obtain credit in the future. It will not be impossible for you to obtain additional credit in the future. However, if you obtain any credit cards, car loans, or mortgages, then your interest rates will be much higher. Moreover, for many car loans you will be required to have a co-signer. Finally, many banks will require a person to pay at least twenty 20% as a down payment if he has recently filed for bankruptcy.

Even though a bankruptcy will appear on your credit report for up to 10 years, most people who seek to purchase a home are eligible to obtain a mortgage within two‑years after they file. All creditors view bankruptcy with a different perspective. If you have maintained a consistent pattern of paying off your debt after filing for bankruptcy, then most lenders will reward your new credit behavior. If you are planning on buying a home before you file bankruptcy, then it is advisable to thoroughly discuss this with a bankruptcy attorney. He will be able to advise you as your potential ability to secure additional mortgage funding after you receive a bankruptcy discharge. I have had countless of my clients call me after their case is over to request another copy of their bankruptcy paperwork. These clients need their bankruptcy paperwork to apply for their new their new mortgage application. The bottom line is if you earn a reasonable living, and if you can afford to make a reasonable down-payment, then obtaining a new mortgage after a bankruptcy is not as difficult as it may sound.

Bankruptcy may also affect your ability to lease an apartment or a home, and to find new employment. Many employers are able to ask if you have ever filed for bankruptcy before. Even if it has been a long time since your bankruptcy, you are still required to disclose this information or risk having your employment terminated for lying about your background. Potential landlords may also check your credit history before offering you a lease. Many rental property owners are not willing to provide housing to individuals with a bankruptcy on their record.

Also, when you file for bankruptcy it may affect your ability to file for bankruptcy in the future. For this reason, it is important for you to discuss your financial situation with an experienced bankruptcy professional so that he can assist you to determine if bankruptcy is the best option for you at this point in your life. In some situations, it may be advisable for you to delay filing for a bankruptcy. One of the most important aspects of filing for bankruptcy is the timing when your case is filed. Only an experienced bankruptcy lawyer will be suited to advise you as to the adequate time to file, or not to file.

Filing for bankruptcy can also be very stressful and emotionally draining. I have had many clients who have cried at my office when they sign their petition, and or when they attend their court hearing. Filing for bankruptcy can take a toll on your health, your personal relationships, and on your self‑esteem. Moreover, it can also upset your sense of security. An experienced bankruptcy attorney should be able to help you see the light at the end of the tunnel, and provide you with a plan to help you through your difficult financial turmoil.

In summary, filing for bankruptcy can be a very difficult experience. However, I have handled almost two thousand bankruptcies in my legal career. I have not ever had one client call me after their case was discharged, to complain to me that he or she regretted filing. On the contrary, most clients call me after their case is over and advise me how their  bankruptcy made their life more manageable, and that it reduced a tremendous amount of stress in their life.