Chapter 7 Bankruptcy Rules to Consider When Rebuilding Credit

Between seniors, families with an overabundance of debt, and singles who have stretched their spending beyond their means, Indiana residents are filing for protection under Chapter 7 Bankruptcy Code in droves. It is not a well-kept secret why this form of debt erasure is popular.

How one rebuilds his or her credit, more specifically the adjustments one makes to avert future financial nosedives, should be contingent on the following bankruptcy rules of thumb.

Do Not Reaffirm What You Can Not Pay

Your attorneys more than likely sat down and guided you through the Means Test. As the name implies, the test has one function – to see if your income provides a means to potentially pay the debt, or if income simply does not cover the excess secured and unsecured debt load. Once completed, perhaps you would love to keep your vehicle, even knowing you cannot default or it is your tail. This means you will sign a reaffirmation agreement, binding you to that debt until it is paid off.

Honestly, there are several important considerations one should seriously mull over before the agreement is presented with your schedule of creditors and Chapter 7 petition itself:

• Am I upside down on this vehicle? (Owe more than current value of item)
• Have I previously missed payments?
• Will bearing the burden of this debt jeopardize other essential living expenses?

Vehicles are essential for commuting to work, driving kids to school and sports engagements, and having some mode of transportation for emergencies. That said, remember only to reaffirm debt you are able to pay; once discharged, the affirmed debt is yours.

Do Not Apply for Everything Offered Post-Discharge

Barring unforeseen holdups, many petitions are discharged 90 days after submission to court (60 days after the 341 meeting)*. During the final 30 days leading up to debt dismissal, applications for vehicles, catalog-based stores and high-interest, low limit credit cards will begin flooding your mailbox. Why? You are an easy target; once you get approved, companies know you cannot file again for eight years from the filing date of your last bankruptcy (under the same chapter; we will discuss this in weeks to come).

Try to avoid committing to more debt right off the bat. Let all items update as ‘discharged’ on your Equifax, Experian, and Transunion reports, and work on putting your debt nightmare behind you first. Then, and only then, should you consider accepting competitive interest offers that allow you to responsibly rebuild credit.

Do Monitor Reports, Report Serious Violations to Attorney

Remember the automatic stay activated when your attorney filed the petition? Most creditors will abide by this, knowing the penalties for overstepping this law are severe. But occasionally you will have rogue debt collectors try collecting or companies that refuse to update your credit reports as ‘included in bankruptcy.’

Let us reiterate. Anyone you owe money to (even those you may have accidentally omitted) who is included in your bankruptcy petition is forbidden from taking any collection action during and after your bankruptcy. All debts, according to law, that are listed on your petition or are unspoken are included in Chapter 7 petition you filed; that means collection accounts. Exceptions to that rule include:

• Court-ordered child or spousal support
• Criminal restitution and other fees
• Some tax matters (your attorney can clarify)
• Any debt incurred after petition is filed

Unless creditor files a motion to lift automatic stay (not a common occurrence), punitive damages, actual damages and attorney’s fees are collectible if willful violations of automatic stay are discovered*. Jot down any calls, letters, or any collection activity on your report, and discuss these with your bankruptcy attorney.

Final Word

By design, Chapter 7 is a debtor’s ‘reboot’ of his or her financial life. The goal is rebuilding through responsible spending and credit use, not incurring more debt once old debts are erased.

Abusing bankruptcy can dramatically change your life, more specifically cause judgments, creditor harassment, and impede your ability to purchase a home or finance a nicer car down the road. Therefore, it is suggested one never go on ‘app sprees’ post-bankruptcy; wait until personal finances are where they need to be before jumping into the credit market.

Finally, report all acts of creditor wrongdoing to your bankruptcy attorney, who will gladly hold them accountable for repeat violations of the automatic stay generated when you filed.

To learn more about us and Chapter 7 bankruptcy, including how you will feel financially reinvigorated, contact Northwest Indiana’s premier bankruptcy Whitten & Whitten, by phone at 219-756-0555.

*For informational purposes only. No attorney-client relationship is established or implied. *Exact case results will vary from client to client.