In the 1934 case Local Loan Co. vs. Hunt, the United States Supreme Court stated that the bankruptcy process was intended to give honest but overwhelmed debtors a “new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”
These words are an excellent -and still appropriate- description of the fresh start that you gain when you file bankruptcy. You are putting your financial mistakes or challenges behind you and now have the chance to enjoy all the benefits that accompany financial security. They include buying a house, contributing to a retirement account or college fund, and several other perks that were impossible when you were struggling to make ends meet.
In this blog, we’ll highlight the various aspects of your life that can change when you file for bankruptcy, all of which contribute to a fresh start.
Your debts are discharged
Once your bankruptcy is complete, you will be discharged from unsecured debts like medical bills, credit cards, and personal loans. While certain debts, like taxes, child support, and most student loans are nondischargeable, you will still be in better shape financially. For example, if you filed Chapter 7, you can take the money that used to go towards credit card payments and pay down your student loans while a Chapter 13 repayment plan allows you to eliminate all debt by paying it off over three to five years.
You can rebuild your credit
It’s true that bankruptcy impacts your credit. The extent of the damage will depend on your pre-filing credit history. For example, if your score was over 700, it could fall by as much as 200 points, while those with lower scores will see less of a drop.
Although Chapter 7 will remain on your credit report for 10 years after the filing date (seven years for Chapter 13), you can still rebuild. As time passes, you will likely start receiving credit card offers, although the limits may be lower and the terms not as favorable in the beginning. Keeping the balances low and paying your bills as they come due can raise your credit score and result in better credit terms.
You can do better financially
Bankruptcy gives you the chance to take a close look at your financial habits. The credit counseling class you are required to take before filing will give you an honest overview of your income and expenses and show you how to develop a budget while the post-filing personal financial management course covers important topics like reducing expenses, saving money, and monitoring your credit.
Contact the Hedtke Law Group
At the Hedtke Law Group, we are committed to helping consumers and small business owners address their debt challenges and start over with a clean financial state. Anyone can be overwhelmed by debt due to factors beyond their control, and when that happens, bankruptcy can represent the fresh start they deserve.For more information or to schedule a consultation, contact us today.