Bankruptcy and Credit
Most people file for bankruptcy to get a discharge of all their debts. A discharge is a court order stating that you do not have to pay most of your bills. There are certain debts that cannot be discharged such as taxes, child support and school loans. And the discharge applies only to debts that you incurred prior to the bankruptcy. It does not apply to any debts you make during and after the bankruptcy.
A bankruptcy will be recorded on your credit report and will remain there for 10 years. It will be viewed negatively by many creditors. Still, your credit history was in bad shape before you even filed for bankruptcy. Creditors also know that you cannot obtain another Chapter 7 bankruptcy for eight years. These creditors may well offer to extend you credit. However, creditors who do extend you credit shortly after a bankruptcy will probably do so on unfavorable terms, such as low credit limits and high interest rates. Credit terms may become more favorable after you have reestablished a good credit history by making on-time payments and limiting the use your credit.
Credit card companies are some of the biggest losers in a Chapter 7 bankruptcy because credit card debt is unsecured. If you asked a credit card company if you could keep your credit card, the company might jump at the opportunity because it means that you will continue paying your debt to them. But, you will be required to sign a reaffirmation agreement.
A reaffirmation agreement is your promise that you will continue to pay the debt that you owe on the credit card even though the debt could have been discharged in the bankruptcy. To be valid, the reaffirmation agreement:
- Must be voluntary
- Must not place a heavy financial burden on you or your family
- Must be in your best interest
- Must be signed by you and filed with the bankruptcy court
- Can be canceled at any time before the court issues the discharge order or within 60 days after it is filed with the court
If you were not represented by an attorney when you signed the agreement, the court may hold a hearing to determine whether the agreement is in your best interest.
Be sure you want to reaffirm a debt that would otherwise be discharged. If you fail pay the debt after reaffirming it, you will owe the debt as though there were no bankruptcy. It will not be discharged. The creditor can take legal action to recover the debt. More importantly, your failure to pay the debt will likely destroy your attempt to rebuild your credit.
Bankruptcy and Credit
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