WHEN WILL I BE ABLE TO GET CREDIT AGAIN? I HEARD BANKRUPTCY STAYS ON YOUR CREDIT REPORT FOR 10 YEARS; IS THAT TRUE?
Bankruptcy will hurt your credit in the short term, but it may be better than the alternatives in the long term. A bankruptcy will stay on your credit report for 10 years, although some credit bureaus may only report a chapter 13 bankruptcy for 7 years. In any case, even though bankruptcy will stay on your credit, you will start start rebuilding your credit immediately upon the discharge, unlike debt negotiation plans that go on for 3 to 4 years.
After your bankruptcy is over, making current, full payments on secured debt like a car loan or home loan that survives the bankruptcy is one way to start building your credit. If you rent and do not have a car payment, a secured credit card with a low balance will start you on the way to rebuilding your credit.
Many debtors experience an improvement in their credit rating soon after bankruptcy, because all their debts are gone. We have seen people buy houses and refinance to low interest rates within two years after a bankruptcy discharge. However, in the current economic environment with the concurrent credit crisis, we don’t know if this kind of credit rebound from bankruptcy is realistic.
WON’T EVERYONE KNOW THAT I FILED BANKRUPTCY?
Because bankruptcies are part of the public record, many people think that their bankruptcies will become common knowledge. In practice, though, it’s highly likely that no one will ever know, unless you are a prominent official in society or live in an extremely small town full of nosy people who spend their spare time looking for this sort of thing. The only people who are going to know are people you tell and people who have access to the bankruptcy court record system. Individual bankruptcies are published in the Daily Journal of Commerce and business bankruptcies are listed in the Puget Sound Business Journal, but we have never heard of a case in which a client’s bankruptcy was discovered by friends and colleagues who were not told about it.
CAN I STILL FILE BANKRUPTCY AFTER THE LAW CHANGED?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) took some of the discretion away from bankruptcy judges and changed the method in which debtors qualify for the different types of bankruptcy. In our experience, the changes have been both positive and negative. The negative part is the amount of paperwork and the complicated test that have to be completed before filing. The positive part is that the law is new, and our firm has found ways to take advantage of the ambiguities in the new law to get the best advantages for our clients. Over the past four years we have only encountered two clients that have been disadvantaged by the new law overall.
I WANT TO PAY MY DEBTS AND DON’T WANT TO FILE BANKRUPTCY. ISN’T IT TRUE THAT ONLY BAD PEOPLE WITH NO MORAL CONSCIENCE FILE FOR BANKRUPTCY?
There are so many moral reasons why bankruptcy is the right answer for people that we cannot count them all. For example, if you are having trouble paying credit cards and your child support, bankruptcy is definitely the morally correct decision if it allows you to pay your support payments on time. If you are borrowing from family members and having difficulty buying food and necessities for your family, there is no question that bankruptcy is the morally right decision. Bankruptcy is often the best solution for hard-working people who are going through difficult times.
DO I HAVE TO FILE BANKRUPTCY WITH MY SPOUSE?
Spouses do not have to file together, but in most cases it makes sense to do so. However, if your spouse refuses to file or has separate property or a pending inheritance, it may make more sense to file without your spouse. A separate filing of a married couple still gives the couple the benefit of a community discharge of their debts, as Washington is a community property state (i.e., each spouse owns a 50 percent interest in any property acquired during the marriage, with a few exceptions). A spouse filing separately should include all debts of the non-filing spouse and the entire income for the household, including any money coming from the non-filing spouse.
CAN’T I KEEP PAYING MY CREDIT UNION OR FAVORITE FAMILY MEMBER EVEN THOUGH I HAVE FILED FOR BANKRUPTCY?
In bankruptcy, every asset and every creditor must be listed on your bankruptcy schedules. The only credit cards you do not have to list are the ones with a zero balance at the time of filing. If you have friends and family members who have loaned you money, they must be listed too. We usually advise our clients to write letters to all their personal creditors saying that their attorney forced them to include them in the bankruptcy in order to extinguish the debtor’s legal responsibility for the debt. When your bankruptcy has ended, you may still feel a strong urge to compensate your friends and family for the help they’ve given you in tough times, and having your other debts out of the way may make this easier.
As for Credit unions, their debt is special: they hold a claim to the money and/or proceeds in the checking and/or savings accounts associated with them. We usually recommend that clients who have a car loan, home loan, or credit card with a credit union pull all their available cash out of their accounts before filing, in order to avoid any problems.
I HAVE ALREADY FILED BANKRUPTCY, CAN I FILE AGAIN?”
There is no provision in the bankruptcy code that prevents more than one bankruptcy filing in a Debtor’s lifetime. There is a provision that you can only receive a chapter 7 discharge once every 8 years, but if you received a Chapter 7 discharge, you can file a Chapter 13 just 4 years later, which can be a very good option with people who have gotten themselves into additional debt soon after a Chapter 7 discharge. (Likewise, you must wait 4 years after a Chapter 13 discharge to seek a Chapter 7 discharge. However, if your Chapter 13 case is dismissed, then there is no waiting period and you can file back-to-back should you choose.)
CAN I MAX OUT ALL MY CREDIT CARDS BEFORE I FILE FOR BANKRUPTCY?
NO. Using credit cards after you have decided to file bankruptcy is a classic case of fraud. Since you knew or should have known that a bankruptcy filing was imminent, any major credit card purchases, cash advances, or balance transfers on credit cards are highly suspect if they are completed within 90 days of the bankruptcy filing. If you innocently used your credit card or transferred a balance before a bankruptcy consultation we will probably have to wait 90 days before we can safely file your case for bankruptcy.
CAN I QUIT-CLAIM DEED MY HOUSE AND/OR CAR INTO MY SON’S NAME TO AVOID PUTTING IT ON THE BANKRUPTCY SCHEDULES?
NO. Many people find the possibility of such transfers seductive, but they are definitely considered fraud and will cause you a great deal of trouble. Any transfers between family members within the last four years are subject to review and could be a violation of Washington’s fraudulent transfer law. In fact, any payments to family members within the year before filing are also carefully reviewed.
IF I FILE BANKRUPTCY, WON’T I LOSE EVERYTHING I OWN?
Bankruptcy protects your exempt possessions and, in Chapter 13, allows you to keep your non-exempt possessions as long as you pay the equivalent value of the non-exempt property over the course of the Chapter 13 plan. Bankruptcy actually stops collection, gives you a moment to breath, and makes sure that your property is protected from creditors. In some cases, bankruptcy may even wipe out judgment liens and a second mortgage on a residence, which can be an even greater benefit than most people realize.
IS IT TRUE THAT I CAN GET RID OF BACK TAXES IN BANKRUPTCY?
That is a hard question to answer. If your income taxes were filed more than three years ago and the IRS has not taken any action to levy against your property, you may be able to avoid them in bankruptcy. If you are in this situation, we generally order a complete tax analysis. That costs an additional $300, but that way we know that we are doing the best thing for your particular situation.
WHERE CAN I GET MORE OF MY BANKRUPTCY QUESTIONS ANSWERED?
Feel free to contact an attorney at Henry, Degraff & McCormick and we will be able to setup free consultation with you or call us at 206-330-0595.
If your tax obligations stem from unfiled 941 employment taxes or state sales taxes, there is no bankruptcy discharge remedy, and you will have to work out a payment plan within a Chapter 13 bankruptcy or outside of a bankruptcy once your Chapter 7 case is discharged.