You're considering filing a Chapter 7 bankruptcy to cancel your debts and wipe your credit slate clean. While your credit slate doesn't really get clean after a bankruptcy, you'd be surprised that getting or keeping credit isn't that big of a problem.
Effect of a Chapter 7 Discharge
Most people file to cancel their debts. The discharge applies only to debts created prior to the bankruptcy. It doesn't apply to those made during and after the bankruptcy.
Your credit report will be updated with the information from filing a bankruptcy and will remain there for 10 year. It'll be viewed negatively by many creditors, but your history was bad before the bankruptcy. Creditors also know that you can't obtain another Chapter 7 bankruptcy for another eight years. You'll still be offered credit, and you'll also continue to receive unsolicited credit offers, too.
Be forewarned! Creditors who extend credit shortly after you file, will do so changing higher interest rates and low credit limits. Making payments on time and limiting the use of your credit card will help you reestablish good credit.
Reaffirming Exisiting Debt
Credit card companies are some of the biggest losers in a Chapter 7 bankruptcy. Because credit card debt is unsecured, there is no other asset that a credit card company can collect in case you default on a payment. 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 a promise that you'll continue paying off the debt owed even though the debt could have been discharged in the bankruptcy. The reaffirmation agreement is valid if:
- It's voluntary
- Doesn't place a heavy financial burden on you or your family
- It's in your best interest, not the credit card company's
- Is signed by you and filed with the bankruptcy court
- It can be canceled anytime before the court issues the discharge order or within 60 days after it's filed with the court
If you weren't 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'll 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.
Questions for Your Attorney
- Can I get a school loan after I've filed for bankruptcy?
- Are the debts that I incur during the bankruptcy discharged?
- How long will a bankruptcy remain on my credit report?