Your Credit and Future after Bankruptcy

When deciding whether filing for bankruptcy is the right thing to do, foremost in the debtor’s mind is usually what life will be like after the bankruptcy proceeding is complete. While most debtors realize that it will be difficult to obtain unsecured credit (credit cards) for some time, there are other ways in which filing for bankruptcy can affect a debtor’s future. Before determining to declare bankruptcy, a debtor may wish to consider the way in which bankruptcy could affect the following areas of his life.

Child Custody

There is no state law that says that a parent who has filed for bankruptcy is less fit to have custody of a child than one who has not. Indeed, in determining which parent should get custody of a child, the only requirement the family court is bound by is to act in the best interests of the child. Ideally, a bankruptcy filing would have no bearing on a child custody case.

However, as part of the “best interests of the child” test, the family court may indeed consider the ability of the parents to manage their household budgets, live within their means, and provide for their children. In this respect, the opposing parent is bound to argue that a bankruptcy filing is indicative of the debtor’s irresponsibility with money and, possibly, as a parent.

By no means should a bankruptcy filing keep a parent from seeking custody of their children, nor should a child custody battle prevent a debtor in need from filing for bankruptcy. Rather, the best way to proceed is for the debtor to be honest and upfront regarding the bankruptcy case with both his family attorney and the family court judge.  Additionally, demonstrating to the family court a renewed focus on budgeting and living within one’s means will go a long way towards negating the impact, if any, of a bankruptcy filing.

Employment After Bankruptcy

As if the prospect of bankruptcy wasn’t daunting enough in and of itself, the thought that it could have an impact on the debtor’s current or future employment is probably enough to cause many debtors to have serious second thoughts about a bankruptcy filing. However, there are a few ways in which bankruptcy could indeed affect one’s employment.

More and more creditors have begun reviewing the credit report of each and every job applicant they consider for employment.  As a bankruptcy filing can appear on a credit report for 7-10 years, how to approach the subject with a prospective employer is definitely something to think about, especially if the debtor works in the financial arena.

Secondly, though far less-likely, is the possibility that a debtor could lose his current job due to a bankruptcy filing. While most employers would not have the means to find out their employee was involved in bankruptcy proceedings absent requesting a credit report, such a discovery could have negative consequences, particular if the debtor is employed in an area that involves the discretionary management of employer funds.

How Long Will Bankruptcy Affect Your Credit Record?

Once you file for bankruptcy, your filing not only appears on your credit report, but becomes part of the public record. In addition to probably being searchable via federal court records for the foreseeable future, a bankruptcy can legally remain on your credit report for ten years from the date of filing. However, the three major credit reporting agencies have agreed to remove Chapter 13 bankruptcies from credit reports after 7 years from the date of filing.

Self-Esteem

Though the financial consequences of filing for bankruptcy can be severe, a debtor should not lose sight of the fact that bankruptcy can have a devastating effect on his self-esteem as well. Even though the number of individuals and businesses filing for bankruptcy has sky rocketed over the last few decades, many still see a declaration of bankruptcy as a public proclamation of failure or irresponsibility.

The most important thing for a debtor to remember is that the Bankruptcy Court was created to help those overwhelmed by debt to get out from under it and move forward, not to punish or humiliate them. If there was no great need for a bankruptcy process, one would not have been established. In this sense, a debtor can proceed secure in the knowledge that he is following in the steps of many others who have filed for bankruptcy, survived the process, and emerged able to move on with their lives.

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