The Journey After Bankruptcy

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Today’s guest post comes to us from Chris Mullen.

In 2004, the laws regarding bankruptcy began to change. A bill was passed for how bankruptcy would be handled, which came into effect in 2005. Part of this financial bill was to make sure anyone submitting for bankruptcy would first take a debt management course. This was inputted into the bill to lower the frequency with which some were filing for bankruptcy. Given the high rate of bankruptcies filed, the government felt a need to make some changes.

For those that filed seven years, ago their journey may be completed or at least closer to the right path. Once a bankruptcy is filed and the debts discharged, one’s credit is highly affected. First, the credit scores are already low given the need for bankruptcy, and they will remain low.

During this time, a person has to consider what debts they should take on and what they should stay away from. For example, credit cards can help improve one’s credit scores over time, but they can also create a new debt situation. A bankruptcy on record also means high interest rates on credit cards, loans, and mortgages. The only type of loan that may not be affected by the bankruptcy are the pay loans with no credit check. The rates would be the same for any borrower, which is often quite high to begin with.

It is best for someone that has filed for bankruptcy to take the seven years the bankruptcy is on their credit record to improve their credit with rise money lending practices. In this case, one should have a prepaid credit card that will report to the credit bureaus. They should also make regular payments on a mortgage or car loan.

It is essential to have companies reporting good things about one’s outstanding credit. No reporting is just as bad as the scores will not increase, but often remain the same. Once it has been seven years, the bankruptcy can no longer be used against a person for credit, meaning interest rates can be comparable to the repaired credit amount one has in their financial reports over what it was nearer the bankruptcy.

How about you all? Have you or any one you know ever filed for bankruptcy? If so, was it Chapter 7 or 13? Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

• @ The debt management class requirement for those filing for bankruptcy – I actually had no idea that this was required! Did everyone else know that this was necessary in order to file bankruptcy? I’m also curious as to whether the government pays for this or whether the payment for it gets lumped in to your debt that will be erased with the filing.
• @ The concept of bankruptcy in general – To me (maybe it is just me that feels this way), bankruptcy, at times, almost seems too good to be true. The concept that your debts can be totally wiped clean after getting in way over your head is simply amazing! And, your credit report only suffers for 7 years? This seems too good to be true. OK, I know it can be argued that the people that experience bankruptcy won’t be able to get favorable financing in order to own their own home or start new businesses. However, in my opinion, it seems that the majority of people reaching bankruptcy probably weren’t on track to one of these goals in the first place. 
• So, I’ll leave you all with one question I have – are the penalties for bankruptcy severe enough currently? Or, do you think they need to be tightened to deter it was occurring?

***Photo courtesy of http://www.eurodebt.com/images/bankruptcy_images/bankruptcy_service_300.jpg