Life After Bankruptcy
These are some of the most common questions I get daily from previous clients who have filed Bankruptcy with my office (usually Chapter 7 unless otherwise noted).
How long may bankruptcy information be included in my credit report?
Both the Bankruptcy Code and the Fair Credit Reporting Act (which regulates what a consumer reporting agency may include in your credit report) are Federal law, so the same rules apply to all states.
A consumer credit report may include information on a Chapter 7 and Chapter 13 bankruptcy for 10 years from the commencement of the case. We have been advised that at least one major consumer credit reporting agency removes information about Chapter 13 after only 7 years although it is not legally required to do so.
Most other credit information may be reported for 7 years, except for civil suits, civil judgments, and arrest records can be reported for at least seven years, but may be reported longer if the governing statute of limitations is longer. For example, in Arizona, a court judgment is effective for 5 years. However, it may be renewed at the end of that time for another 5 year period, and again after that period. As a result, a renewed civil judgment could be reported for as long as it is effective.
The restriction on reporting any credit information do not apply to reports for:
- credit transaction involving, or which may reasonably be expected to involve, a principal amount of $150,000 or more;
- the underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of $150,000 or more; or
- the employment of any individual at an annual salary which equals, or which may reasonably be expected to equal $75,000, or more.
Can you still get a Federal guaranteed student educational loan after you have filed bankruptcy?
Unlike most credit, the granting of government guaranteed educational loans is not based upon credit history or income. They are instead extended if you meet the statutory and administrative criteria. Although default on an existing educational loan may affect your ability to get a subsequent loan, the filing of a bankruptcy in itself should not. As a matter of fact, the government is restricted from discriminating against those who have filed bankruptcy.
How long after filing bankruptcy will I be able to get a loan to buy a house? Will the interest be “sky high”? What are some of the other credit effects of filing bankruptcy?
The short answer to your question is that you may be able to finance the purchase a home two years after you have gotten your discharge in bankruptcy, but you may qualify as early as one year after filing Chapter 13, or one year after discharge in Chapter 7.
Since a large proportion of home loans depend on FHA or VA loan guarantees, your ability to qualify for those guarantees may determine when you are able to obtain a home loan.
FHA will insure mortgages to individuals who have filed Chapter 7 liquidation bankruptcy two years after the discharge if “the borrower has reestablished good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs.”
To obtain a loan within one year after the discharge, the borrower must show that “the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited an ability to manage financial affairs and the borrower’s current situation is such that the events leading to the bankruptcy are not likely to recur.”
FHA regulations also specify that a borrower still in a Chapter 13 debt adjustment who has satisfactorily completed one year of plan payments and gets court approval of the transaction. The VA has similar regulations. The VA handbook for lenders includes provisions that “If the bankruptcy was discharged more than 2 years ago, it may be disregarded.”
If the discharge was between 1 and 2 years, the guarantee may still be granted if the applicant or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period and the bankruptcy was caused by circumstances beyond the control of the applicant or spouse such as unemployment, prolonged strikes, medical bills not covered by insurance, etc.
VA regulations allow granting of the loan guarantee to a person in a Chapter 13 when the plan payments are finished satisfactorily, or after 12 months payments and the Trustee or the Bankruptcy Judge approves of the new credit.
If you obtain home loan financing with a loan guarantee, the loan rate should be based on the guarantee status of the loan. As a result, I would not expect that the rate would be affected by the bankruptcy.
Other effects of bankruptcy on credit are difficult to assess. Credit is extended by individual lenders, and is not generally regulated by law. Lenders do not generally make their criteria public. We do know that there are two factors which are important to creditors in extending credit.
- Ability to make payments. Any lender will want to be sure that you have the ability to pay back a loan before extending you credit. The discharge in a bankruptcy should improve your ability to make payments. You will no longer owe the debt that you did when you filed, and you will no longer be subject to judgments, garnishment and other collection activities which would impair your ability to pay back the new loan. In addition, the restriction against you filing a Chapter 7 for 8 years from the filing of your previous case may give the creditor some assurance of their ability to collect new debt.
- Credit history. Lenders look at the way you have paid your bills in the past as an indication of how you will pay your bills in the future. A bankruptcy is an adverse rating in this respect, but creditors can also see how your credit was before the circumstances which caused the bankruptcy. If you had a good credit history and paid your bills on time before the bankruptcy, you may find that it is easier to re-establish credit than if you were perpetually behind on your payments and had judgments against you.
I filed Bankruptcy sometime ago and there are some things still showing up on my credit report, What do I do?
This is by far the most common call I get from past clients. Making sure your credit report is accurate is everyone’s own responsibility. Remember, my goal for each and every bankruptcy client I have is to assist my client in getting a bankruptcy discharge wiping out their debt. The goal in filing a Chapter 7 Bankruptcy is to get a DISCHARGE of your debts. It is a Court Order (signed by a United States Bankruptcy Judge) and mailed by the Bankruptcy Court to all the creditors listed on your petition. It ORDERS your creditors to cease any action to collect their debt from you, FOREVER. Within a few weeks of your filing, most creditors will have reported your filing to the main credit reporting agencies and most debts will have a notation such as “discharged in Bankruptcy Chapter 7”. Some debts won’t have such a notation and may show up as still being owed despite having been listed on your petition. This is nothing to be alarmed about. You really don’t need to do anything, because the creditor CANNOT COLLECT the debt. I get calls everyday from past clients at a car dealership or mortgage broker who has pulled up their credit report and out of the 30 accounts listed at the time my client filed their bankruptcy, 2 of them are still showing as outstanding obligations. THEY ARE NOT OWED, THEY ARE DISCHARGED, whether or not listed in the bankruptcy petition. Some creditors choose to notify the credit reporting agency of the bankruptcy filing, others did not. No big deal, all debts that are dischargeable (i.e. not a student loan, tax or child support) are discharged! Every one of the 3 major credit reporting agencies has way in which you can dispute inaccuracies to them and they will investigate and correct these mistakes.
I filed Bankruptcy and a creditor keeps sending me threatening letters, what do I do?
This happens in just about every case I file. A creditor or a collection agency keeps mailing the same nasty dunning letter to my client month after month, despite having been listed on the Bankruptcy Matrix (the mailing list of creditors). The first thing you should do is not worry. 99 times out of 100, the letter you are getting is being spit-out every month by a computer and being mailed to you in hopes that you send some money. The creditors you listed in your Bankruptcy petition were all mailed a Notice of Commencement of Bankruptcy shortly after your case was filed. Some of these Notices were sent to the creditor after they had already sent or sold the debt to a collection agency who has no idea you filed Bankruptcy, others were sent to the creditors corporate offices in South Dakota and there collections office in Pennsylvania has no record in their computer that you filed. Let them know you filed! Remember, your creditor or collection agency wants to know about your Bankruptcy and normally will not continue to try to collect a debt in violation of the automatic stay of the Bankruptcy Code. Usually they are just making an honest mistake and will correct their records as soon as you let them know. Send them a copy of your Bankruptcy Notice or your Discharge. In the rare case that a creditor continues to harass you in willful violation of the Bankruptcy Stay or Discharge, contact my office immediately.
I filed Bankruptcy and its showing up on my spouse’s (or father’s, son’s, sister’s) credit report, Why and What do I do ?
This situation most commonly happens if a person has a relative (or friend) who cosigned a debt. Remember what cosign means-you and the other person (both are co-signers) are equally liable for the debt, BOTH are responsible. When one party files a Bankruptcy, the other person who signed is still just as liable as before. It doesn’t mean that the creditor will now all of a sudden go after this person, the creditor could have before, nothing has changed. The filing of a Bankruptcy means the creditor cannot try to collect the debt from the person who filed, the cosigner is still responsible or liable. If you are concerned about filing a bankruptcy petition and wish to protect a co-signer, a Chapter 13 repayment plan will prevent the creditor from collecting from the co-signer as long as you are paying the creditor’s debt in full. As far as the co-signer’s credit report showing a Bankruptcy it is most likely showing only the co-signed creditor’s debt (e.g. Ford Motor Credit-included in Bankruptcy) because this person co-signed for someone joint on the account (you) who has filed. The credit report does not indicate that this person filed a Bankruptcy case themselves, (unless of course they have). This is really nothing to be concerned about. Credit Repair Remember, the Credit Reporting Agencies are allowed to report true and accurate information concerning individual’s credit history. To dispute the accuracy of such information with the agencies go to my link.
I filed Bankruptcy and one of my creditors keep calling?
I get this question every day. The first thing I ask my client is, “Did you tell the creditor or collection agent that you have filed Bankruptcy?” NO, I DID NOT THINK OF THAT! is the usual response I get. Let’s use some logic here. Remember, 99.9% of creditors will leave you alone once they know you have filed Bankruptcy. If they don’t know you have filed, let them know, ask them who they are and where they are calling from. If they know they are prohibited from collecting from you they will not waste their time. They will be happy to close your file once they get your Bankruptcy information. Give them your Bankruptcy Case Number (located in the upper right hand corner of your Notice of Commencement of Bankruptcy or your Discharge Order. Let them know you filed! Remember, your creditor or collection agency wants to know about your Bankruptcy and normally will not continue to try to collect a debt in violation of the automatic stay of the Bankruptcy Code. Usually they are just making an honest mistake and will correct their records as soon as you let them know. Send them a copy of your Bankruptcy Notice or your Discharge. In the rare case that a creditor continues to harass you in willful violation of the Automatic Bankruptcy Stay or Discharge, contact my office immediately.
My Mortgage Company (or car finance company) stopped sending me monthly statements?
Each creditor you have (including those you wish to continue to pay and keep-such as your mortgage company or car finance company) must be listed in your Bankruptcy petition-after all they are a creditor of yours and by law are required to be listed and to be mailed Notice of the Bankruptcy. Just like any other creditor, they are automatically stayed or stopped (prohibited) from contacting you to request or demand payment, this includes sending you your monthly billing statement (or reminder). They may still give you information about your account if you call them-you can call them, they can’t call you asking for payment. If you wish to keep the security for the debt (i.e. the house or car),you should continue to send in your monthly payment as usual. Typically, after a while, the mortgage or other finance company will resume the normal billing cycle with statements. You may also ask them in writing to resume the monthly billing statements to you. Occasionally, the creditor will want you to sign a reaffirmation agreement which is a contract that you sign after you file a Chapter 7 that legally binds you to the original terms of the contract (usually) and will survive your Bankruptcy as if you had never filed (i.e. you can be sued, garnished etc. if you default on your reaffirmation). The Bankruptcy Court discourages multiple reaffirmation agreements signed after filing a Chapter 7 bankruptcy case in Michigan because many a debtor have had to file another Bankruptcy (such as a Chapter 13 reorganization or repayment plan) after signing a reaffirmation agreement. Remember, a reaffirmation puts you back on the hook, the creditor wants you to sign it. You don’t have to sign it, you can normally just continue to pay as usual.
What is a reaffirmation agreement? (my mortgage company or car finance company said I should have signed one ?
Occasionally, the creditor will want you (and me if I represented you as your attorney in Chapter 7) to sign a reaffirmation agreement which is a contract that you sign after you file a Chapter 7 that legally binds you to the original terms of the contract (usually) and will survive your Bankruptcy as if you had never filed (i.e. you can be sued, garnished etc. if you default on your reaffirmation). The Bankruptcy Court discourages multiple reaffirmation agreements signed after filing a Chapter 7 case because many a debtor have had to file another Bankruptcy (such as a Chapter 13 reorganization or repayment plan) after signing a reaffirmation agreement. Remember, a reaffirmation puts you back on the hook, the creditor wants you to sign it. You don’t have to sign it, you can normally just continue to pay as usual. Think for a minute why the creditor wants you to sign the reaffirmation agreement… because it protects them-it puts you back on the hook as if you have never filed a Bankruptcy. Does this mean I never sign them? No, sometimes a client will want to keep a small line of credit with a credit union they have been with for year and who has been the only source of credit in past tough times. Sometimes a client will want to keep a small department store credit card and the creditor is offering to let them keep it. Sometimes a recent secured purchase such as a car or furniture may justify the signing of a reaffirmation agreement. It is my standard practice to make sure you completely understand your rights and responsibilities regarding a reaffirmation agreement before signing and I usually will discourage it unless I feel it is in your best interest(s). Usually you are better off not signing and continuing to pay for merchandise or secured property you wish to keep. Remember you can continue to pay whoever you want after filing your Bankruptcy, you just can’t be forced to pay if it has been discharged. I will advise you further should a creditor want a reaffirmation.
When will I get my Discharge Order?
Your Bankruptcy Discharge Order will arrive in the mail, usually 90 to 120 days after you went to your Chapter 7 Bankruptcy Meeting of Creditors (also called a .341 Hearing) which took place about one month after your case was filed with the Court. The United States Bankruptcy Court located in Detroit mails out the Discharge letters from a central mailing location. Please do not call the Detroit Bankruptcy Court Clerk unless it has been quite some time since your filing. If you lost, misplaced or otherwise cannot locate your Discharge Order that was mailed out (and if I have a copy that means one was mailed to the address on your petition or the last address given to the Trustee at the meeting of creditors), my office may be able to locate a copy for you for a nominal charge. Simply contact my office for a replacement.
I filed Chapter 7 about six months ago and said I wanted to keep my car that I was financing. Today they repossessed it, what do I do?
Generally we find out that the vehicle was not repossessed because you did not sign a reaffirmation agreement, but 99 times out of 100, the reason the car finance company repossessed the vehicle was because you were behind in payments, the other 1 time is because you failed to maintain full coverage insurance as required by contract (the car finance company was worried the vehicle may be stolen or totaled in an accident-and your insurance company informed them that your insurance had lapsed). OK so the vehicle has been repossessed, now what. First, was it a lease or a purchase? Second, was the vehicle reaffirmed during your bankruptcy? If the debt was not reaffirmed, you will not owe a balance after the vehicle is sold at an auction, if you did reaffirm, you will be liable to the finance company for any resulting deficiency after the car is sold at the auction because you reaffirmed the debt during your bankruptcy. If the latter is the case, see me immediately because we may be able to get the vehicle back for you with a Chapter 13 bankruptcy filing.
Will my employer and landlord find out about my bankruptcy?
Bankruptcy petitions are public records; however, under normal circumstances, no one will know you filed a bankruptcy petition unless you tell them. If your employer or landlord is a creditor, it must be listed as a creditor on the schedules, and it will receive notice of the bankruptcy proceeding. In some states, Chapter 13 Debtors are required to make payments through wage garnishment, which means the employer will learn about the bankruptcy.
Will this affect my getting an apartment?
Many of the larger apartment complexes are owned by banks, and banks tend to grant leases according to credit bureau reports. This may affect you. Small landlords will call former landlords and may not check credit reports.
Can employers discriminate or fire me?
No. There is an anti-discrimination section of the Bankruptcy Code that prevents employers and the state of Michigan from denying you licenses or discriminating against you when hiring. But do yourself a favor: Keep it to yourself. They generally won’t know unless you tell them.
How long should I keep a copy of my Bankruptcy?
You should keep a copy of your bankruptcy, with your bankruptcy discharge paperwork, for at least 10 years.