Bankruptcy is a Tough Decision
The decision to file bankruptcy may feel like the most difficult decision you have ever been faced with. One reason this decision seems so monumental is because debtors approach it as a moral dilemma. The decision to file for bankruptcy is a business decision, not a moral one. When creditors extend credit, they don’t make that decision based on morality, whether the borrower is a nice person, or because they like the debtor personally. Creditors extend credit because they are going to make a profit on debtors, not because they believe it is “the right thing to do”. Please don’t forego your rights as guaranteed by Article 1, Section 8 of the United States Constitution because you feel guilty about not repaying an entity that has gauged you on interest and fees for years.
Impact of Bankruptcy Filing on Credit Score
Another hesitation many debtors have when considering bankruptcy is the impact of the bankruptcy filing on their FICO or credit score. The majority of the time, people considering bankruptcy already have a severely impacted FICO which is getting worse by the day as accounts remain delinquent. A credit score under these circumstances will continue to decrease unless something different is done. A Chapter 13 filing can remain on your credit report for 7 years and a Chapter 7 filing can remain for 10 years. However, your FICO will not remain impacted by a bankruptcy for 7 or 10 years. With proper usage of credit on a going forward basis, it is easy for a debtor to have a FICO in the 700’s within 18 to 24 months of filing.
Credit Cards After Bankruptcy
Many debtors worry that they will never again be offered credit cards after bankruptcy. This thought seems logical, but is actually much the opposite. Because a debtor is only entitled a discharge in a Chapter 7 once every 8 years, creditors are knocking down the door to extend credit. Since a debtor who has just received a discharge in a Chapter 7 bankruptcy cannot receive a discharge again in Chapter 7 for 8 years, creditors know that debtor will repay any credit extended. Therefore, if the debtor goes delinquent, the creditor has 8 years to sue the debtor and pursue collection.
- As it is a business decision for creditors, they will most definitely extend credit at high rates of interest. But, for most debtors thinking of filing bankruptcy, these are the same rates they are experiencing currently. Further, the interest rates are irrelevant because the debtor who has just completed a bankruptcy and received a discharge is going to pay the balance in full each month in order to build their FICO score back up.
The Automatic Stay
When a case is filed under any Chapter of the Bankruptcy Code, the “automatic stay” goes into effect pursuant to 11 U.S.C. §362. The automatic stay is a temporary injunction issued by the bankruptcy court (a federal court) that instructs all creditors of the debtor to stop any and all attempts (of any kind) to collect on a debt. Below are some examples of what the automatic stay will put an immediate stop to:
- Harassing phone calls and/or correspondence from creditors or their debt collectors
- Foreclosure proceedings
- Repossessions of vehicles or other personal property
- State court lawsuits
- Earnings Withholding Orders (wage garnishments)
- Levies on bank accounts
- Recording of judicial liens against real property
Early in 2012, the Chief Bankruptcy Judge in New Orleans awarded damages to a debtor where Wells Fargo continued to violate the automatic stay.
In November 2012, a Bankruptcy Judge for the Northern District of Illinois santioned a creditor nearly 243 times the amount the creditor was attempting to collect from the debtor in violation of the automatic stay.
- The discharge order relieves the debtor of his or her personal obligation on all dischargeable debts. The discharge order essentially makes the automatic stay issued at the inception of the case into a permanent injunction against creditors whose debts were incurred prior to filing. The discharge order prohibits most, if not all, pre-filing creditors from making any attempt to collect a debt that has been properly scheduled in the bankruptcy schedules. Creditors who attempt to collect any debt against a debtor in violation of the discharge order may be required to pay damages and attorney’s fees to the debtor for such violation.
Contact a knowledgeable bankruptcy attorney at Spaulding Law Group today and get all your questions answered.