What is Life Like After Filing for Bankruptcy?

No one wants to have to file for bankruptcy, but the good news is that after you’ve gone through the process, you are likely to find that life is much improved.  Chances are that before bankruptcy your life was filled with unmanageable debts and unpaid bills, threatening calls and letters from creditors and collectors, and the stress of dealing with the potential loss of your home and possessions.

Bankruptcy allows you the chance to have a fresh financial start and to begin to rebuild your finances and your credit.  After filing, you can expect immediate relief in several areas:

  • Harassment from Creditors Will Stop: You will no longer be responsible for unsecured debts which were discharged (eliminated) in your bankruptcy filing, so creditors are no longer allowed to attempt to collect these payments from you. Threatening phone calls, emails, and letters from creditors must end.
  • Foreclosure Proceedings Stop: Declaring bankruptcy will stop foreclosure on your home, so you can continue to live in it as you work out your financial arrangements. If you want to refinance your home you may be eligible to do so after a year if you have filed Chapter 13 or after two years if you have filed Chapter 7.
  • You Can Keep Many Possessions: Ohio has some of the best exemptions (property that you are legally allowed to keep after bankruptcy) in the country. Some of the most commonly used are:

1.      Homestead -- a fixed amount in one parcel of real or personal property you or your dependent uses as a residence, including a house, manufactured, or mobile home.

2.      Personal Property -- including cash and the value of one motor vehicle, household goods, jewelry, etc.

3.      Wages -- a set percentage of your wages are exempt.

4.      Pension -- income you receive from private pensions, tax-exempt retirement accounts (401(k), 403(b), and profit-sharing plans), IRAs, Roth IRAs up to a certain amount, and state teacher retirement.

5.       Benefits – such as workers’ and unemployment compensation benefits, disability assistance payments, vocational rehabilitation benefits, crime victim’s compensation received during 12 months before filing, and earned income tax credit and child tax credit.

6.      Spousal or child support that is reasonably necessary for support.

  • You Can Rebuild Your Credit: Unsecured credit card debt will be eliminated, so you do not have to pay it.  While the bankruptcy will remain on your credit report for 10 years for Chapter 7 and for seven years for Chapter 13, and your credit score will drop by at least 200 points, you can repair your credit relatively easily after bankruptcy – if you use credit wisely, pay your bills on time, and take some positive steps to do so.


Steps to Take

To rebuild your life after bankruptcy, it’s important to avoid going back to old ways that got you into trouble in the first place.  Instead, consider these steps to move forward:

  • Make a Budget and Live Within Your Means — Examine your income and your outgoing essential expenses and come up with a budget that you can stick to. List essentials that must be paid, such as mortgage or rent, utilities, car loans and food. See what is left for discretionary payments, prioritize these, and eliminate those that are not necessary.
  • Make Payments on Time — Make all payments on time, and establish auto-pay and electronic payments to keep you on track.
  • Rebuild Credit — If you have credit cards left after bankruptcy, do not buy anything you can’t pay for by the end of the month. You have a better chance of getting new credit cards, as companies realize that you are more likely to pay back your debts after bankruptcy. If you can’t get a traditional card, get a secured credit card by depositing money into a secured account at a bank, which will give you a credit card with a credit line of 50% to 100% of the deposit. By making payments every month, you will soon be able to rebuild your credit enough to obtain a traditional card. Paying these off each month will increase your credit score and allow you to be approved for a mortgage, car loan, and credit cards with lower interest rates.
  • Begin Saving — Even if you can save only small amounts, it will add up, improve your chances of buying or refinancing a home, and provide money for emergency situations such as having your car break down, losing your job, or facing medical expenses.

Follow these steps, and you are likely to be much happier after filing for bankruptcy.