How does bankruptcy work to give me a fresh start?

Debtors obtain a fresh start because when the bankruptcy is filed creditors can no longer harass them due to the automatic stay.

Debtors obtain a fresh start because once the bankruptcy is filed creditors can no longer harass them due to the automatic stay. Later most debt is liquidated or discharged. A discharge is the legal elimination of debt through a bankruptcy case: the debt is no longer legally enforceable against the debtor. This permanent order prohibits the creditors from taking any form of collection action on discharged debts including legal action and communications with the debtor, such as telephone calls, letters and personal contacts.

Discharged Debts

Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided will remain after the bankruptcy case. That means a secured creditor may enforce the lien to recover the secured property. This is why you must maintain your mortgage payments if you want to keep your house. Likewise, you’ll need to make your car payments to keep your car. (Some lenders may also require a reaffirmation agreement so that you are still personally liable on the debt even after the bankruptcy discharge.)

All debts must be listed and included in the bankruptcy case but not all debts are discharged.

The following are some of the debts that will survive the bankruptcy case:

  • Child support debts
  • Spousal support debts
  • Debts not listed in the bankruptcy paperwork 
  • Government fines and penalties
  • Student loans
  • Certain tax claims
  • Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
  • Certain condominium fees
  • Child support debts
  • Spousal support debts
  • Debts not listed in the bankruptcy paperwork 
  • Government fines and penalties
  • Student loans
  • Certain tax claims
  • Debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated
  • Certain condominium fees

You cannot get a Chapter 7 discharge of your debts more often than every eight years. It is your ace in the hole and not to be played lightly. However, if you need the assistance of the Bankruptcy Court and the relief a “fresh start” can give it is a very useful tool.

Even if the debt is discharged you may still pay the debt after the bankruptcy case has been closed. There are times you might want to pay a debt even though it has been discharged because it is owed to a family member or treating physician. This is your decision.

Debt Follow Up After Bankruptcy

Part of the fresh start will depend on your follow up after you receive your bankruptcy discharge. Debtors need to review their credit reports approximately two to three months after the discharge. It usually takes one to two months before the credit report reflects the bankruptcy discharge. The accounts should be reported as discharged in bankruptcy and show a zero balance. Any incorrect reporting should be contested. The sooner you are aware of any mistakes, the sooner you can begin to take the steps necessary to repair the credit report.

As more and more prospective employers and insurance companies use credit reports in decision-making, the more important it is to correct these errors.

Under the Fair Credit Reporting Act (FCRA), credit bureaus and creditors have a duty to correct inaccurate information. You should request a copy of your credit report from each of the three credit bureaus and review the information listed:

Experian
P.O. Box 2104
Allen, TX 75013

www.experian.com

Equifax
P.O. Box 74021
Atlanta, GA 30374

www.equifax.com 

Trans Union
P.O. Box 2000
Chester, PA 19022

www.transunion.com 

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