If you’ve stumbled upon this article, you’ve probably just received your Chapter 7 discharge or finally finished up your Chapter 13 Plan. If that’s the case, congratulations are in order, but you probably still have a few questions about your life after bankruptcy.
Your Credit After Bankruptcy
How will a discharged debt appear on my credit report? Debts wiped out in bankruptcy should be marked as “discharged” or included in the bankruptcy. “Charged off” does not mean discharged, and it does not mean the debt is not legally enforceable. You are entitled under federal law to an accurate credit report; therefore, it is in your best interest to ensure that all your dischargeable debts are properly categorized as discharged on your credit report. Additionally, under federal law, creditors are required to report that the account balance on a discharged debt is $0.00. So don’t forget to check your credit report and dispute any debt that is not properly notated.
How do I check my credit report for free? Just visit www.annualcreditreport.com and answer the security questions. You can get a free report once a year from each of the three credit reporting agencies.
How long is a bankruptcy reported on my credit history? Your Chapter 7 bankruptcy will be reported for 10 years from the date of filing your case. There is a common misconception that the Chapter 13 bankruptcy won’t fall off until 7 years after your payment plan ends. This is simply not true. The credit reporting agencies will report a Chapter 13 bankruptcy for 7 years from the date the case was filed. Remember that in each of these cases, the date is calculated from the date of filing – not the date your receive a discharge.
What about my mortgage and car debts that I continue to pay but did not reaffirm? If you did not reaffirm a debt during baankruptcy, it should still be listed as “discharged” with an account balance on $0. We often advise clients NOT to file reaffirmation agreements on mortgages and cars because by reaffirming a debt you are making a new agreement with a creditor that their debt is not included in the bankruptcy. In ohter word,s if you default on the loan post-baknruptcy, they can still sue you. We call this the “ride-through” option because the secured debt is merely riding through bankruptcy unaffected. Know that any payments you make on these debts will not help increase your credit score.
So how will reaffirmed debts be reported? If you reaffirm a debt in bankruptcy, it should be reported just as if the bankruptcy were never filed. This a a double-edged sword. Any late payments will ding your credit score and timely payments will help your credit score.
How do I fix errors on my credit report? Under the Fair Credit Reporting Act, creditors and debt collectors must furnish accurate information to the credit reporting agencies. If you believe your discharged debts are not accurately reported, please let your attorney know immediately. Fortunately, the FTC has excellent instructions on how to dispute a debt on your credit report. https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports. If the credit reporting agency and creditor do not correct the error, you can also file a complaint with the Consumer Financial Protection Bureau by clicking here. Finally, you can also seek the services of a lawyer to help you sue both the credit reporting agency (Equifax, TransUnion, Experian) AND the creditor that provided the incorrect information. You can recover your damages plus your legals fees and costs so you’ll have no out-of-pocket expenses associated with protecting your rights.
Creditors Still Harrassing You After Bankruptcy? Every now and thne, you’ll still get calls from creditors after bankruptcy. This is actually more common that you might think, but all you need to do is tell the representative calling that you’ve filed bankruptcy and give them the name of the attorney that helped you file. You are NOT required to give them a case number or any proof that you filed. Bankruptcy is public record, and creditors have full access to this information. Most larger lenders will abide by the rules. Some smaller, less knowledgeable creditors will actually claim they received no notice and will still try to collect on that debt. This is a severe violation of the discharge injunction – a part of the bankruptcy code providing that creditors may never attempt to collect on a debt discharged in bankruptcy. It may also be a violation of the Fair Debt Collection Practices Act.
If a creditor keeps calling after you’ve told them of your bankruptcy filing, please contact your attorney and keep accurate records of each unauthorized communication. That creditor could be liable for heavy sanctions and have to pay your legal fees associated with reopening your bankruptcy case and filing a law suit (called an adversary proceeding) against the creditor that keeps harrassing you.
Rebuilding Credit After Bankruptcy
Never be late on a payment again. That’s the best advice for improving your credit score after bankruptcy. Your credit score is based, first and foremost, on your payment history, and continuing to make late payments is the number one reason why people fail to improve their credit after bankruptcy.
Opening up a secured credit card and applying for a gas card with a small limit and paying it off in full at the end of every month will help you rebuild your credit after bankruptcy This is not necessarily bad advice, but the most important thing is to never be late on your bills, including any new credit cards you apply and acquire. Secured credit cards are not the same as prepaid credit cards. While helpful to control spending, prepaid credit cards will do nothing to improve your credit score. Prepaid credit cards require you to “load” money onto the credit card, and you are limited to charging the amount that’s loaded onto the card. With a secured credit card, the card’s limit may be set to the amount that’s on deposit with the bank that issued the credit card, but it’s not drawn down with each charge. A secured credit card will help rebuild oyur credit.
During this rebuilding phase, do not to max out your credit limit each month. For example, if you have a $200.00 limit on your gas card, make an effort to keep the monthly charges less than $100.00. And most importantly, never make a late payment.
Student loans, priority taxes, and other nondischargeable debts. Student loans and bankruptcy are an interesting subject that I’ve written about before. The short version is that student loans are hardly ever dischargeable in bankruptcy. I recently helped a younger couple discharge over $300,000 of student loan debt. This was a very special case in which my clients’ oldest child was severely disabled and required round-the-clock care from the mother to surive. We were successful in that case, and it’s going to make a world of difference in my clients’ lives, but most people, fortunately, do not suffer from such hardship as living with a disabled child. If you are like most, you’ll need to work with your lender, whether the federal government or a private lender, to start repaying your student loans after bankruptcy.
If you have federal student loans, there are a multitude of income-driven programs that limit the amount of your monthly student loan payment based on your income. Such programs include income based repayment (IBR), income contingent repayment (ICR), Pay as You Earn Repayment Plan (PAYE), and Revised Pay as You Earn Repayment Plan (REPAYE).
Your House and Car After Bankruptcy
Can I keep my house after filing bankruptcy? In most cases, if you continue to make your mortgage payments, you will be able to keep your house after filing bankruptcy. The only reason, other than failing to make your house payments, that you would lose your house after filing bankruptcy is if there were significant equity in your real property above the mortgage balance and your state exemption of $21,500.00 that a Chapter 7 trustee would find suitable for sale to pay off some of your creditors. Backig up a bit, you may protect up to $21,500 of equity in your house from your creditors in bankruptcy. If you are married, you may double this exemption to $43,000. If your spouse does not file bankruptcy and owns the house as well, the exemption is again limited to $21,500 because your spouse’s equity is already protected. Your creditors are not entitled to any equity owned by your spouse. For example, you own a house jointly with your spouse that’s worth $300,000 with a $200,000 mortage. If the trustee decides to sell your house, you will receive a check for $21,500 and your spouse will receive a check or her hald of the equity totallnig $100,000.
How long will I have to wait to buy a house after bankruptcy? In general, you must wait two years to qualify for an FHA loan after bankruptcy. With significant income and 20% down, you may qualify sooner. If you’ve filed multiple times within the last seven years, you’ll have to wait five years to qualify for a mortgage. If you filed a Chapter 13, the FHA is considerably more relaxed with their lending standards because you’ve made an attempt to repay your debts. However, if you’ve dismissed your Chapter 13, you can be heavily penalized by the mortgage companies, who may not lend money to you for 4 years.
Can I get a mortgage modification after bankruptcy? That depends. Most lenders will require you to reaffirm the mortgage before they’ll modify your mortgage, but some won’t. A modification of a mortgage does not qualify as a new debt; therefore, you won’t be sued if you fail to make the modified payments. If you refinance your house, you WILL be liable because you are, in effect, entering into a new loan agreement. If you attempt to refinance with your current lender, they will likely refuse if you did not reaffirm the mortgage because it could be seen as the lender attempting to circumvent the reaffirmation requirements and take advantage of debtors by asking people to refinance properties after bankruptcy.
HOA after bankruptcy. While pre-petition HOA debts may be discharged in bankrutcyy, you are still liable to your HOA for every month that passes in which you are still the owner of your property. Know that just because you may choose to surrender you property to the lender in your Chapter 7 or Chapter 13 bankruptcy, the lender must actually foreclose or take possession of the real property before the monthly obligations to your HOA falls to the lender. This is usually more of an issue with town homes and condos with significantly larger HOA payments than single family residences. Most HOA’s in Georgia are unaware of this and will still not attempt to collect on post-petition HOA fees on a property surrendered to a lender, but they do have the legal right to do so.
City ordinances and property maintenance. Because the owner of the property is liable for any violation of your city’s ordinances regarding hte maintenance of your property, you must continue to maintain your home and keep it in a safe condition. Any fines or fees that accrue from failure to maintain your property will be attributable to the property owner.
Can I walk away from my home after filing Chapter 7 bankruptcy? If you did not reaffirm the mortgage on your house, you may walk away from the home at any time and have no fear of being sued by the mortgage company. This is one of the beautiful advantages of filing bankruptcy and refusing to enter into a reaffirmation agreement. I have never seen a lender foreclose on a home for a debtor’s failure to enter into a reaffirmation agreement, and if you want to move or can’t afford to make the payments on your home, you can simply walk away without fear of repercussions. Remember that you must still pay your HOA dues and, to protect against any liability, keep the property insured until the lender forecloses on the property. Even if the bank force-places insurance on the home, it still only protects the bank’s interest in the property – not yours. If anyone comes by and gets injured on your abandoned home due to your negligence, you could still be held liable and be on the hook for the person’s injuries.
If you’ve filed a Chapter 13 bankruptcy, long-term debts like your mortgage are not discharged. You are still liable for those debts and must make your regular monthly payments during the case. Chapter 13 gives people the ability to make up past due mortgage payments while wiping out unsecured debts like credit cards and medical debts.
Keeping your car after bankruptcy. Just like your home, you must continue to make your car payment if you want to keep your car after filing bankruptcy. Most cars have no equity above the amount owed on the car note, so that’s not usually an issue for most debtors. The main difference between keeping a house and car after bankruptcy is that some car creditors (like Ford Motor Credit) will absolutely repossess a car if you fail to file a reaffirmation agreement. When you file bankruptcy and do not sign a reaffirmation agreement, you are fundamentally altering a creditor’s rights by converting the loan from a recourse to a non-recourse loan. A recourse loan is one where the creditor may sue you if you default on the payments. A non-recourse loan is one where the creditor can only repossess the collateral if you fail to make the payments but have no option to sue you individually.
Your Taxes After Bankruptcy
How do I know if my taxes were discharged? Only certain tax debts can be discharged in bankruptcy, and this is more than most people realize. You can discharge income taxes in bankruptcy if the following conditions are met for the tax year in question: 1) the tax return was due more than 3 years ago; 2) the tax debt was assessed (you’ll receive a notice of assessment in the mail) more than 240 days ago. Sidenote: an audit counts an as assessment, so if you were audited less than 240 days ago, the tax year you are being audited for will not be discharged; 3. the tax return was filed more than 2 years ago. Know that there are a lot of events that can toll these time periods such as asking for an extension of time to file your tax return and entering into an offer-in-compromise.
Debts discharged in bankruptcy are NOT considered taxable income. As you’ll see if you decide to read the linked blog article, any debt you wipe out in bankruptcy are not considered income for purposes of filing taxes. You will never owe more money to the tax man by filing bankruptcy. It’s that simple. Even if you receive a 1099-C from a creditor, you still don’t have to include that income on your tax return. But you will want fill out IRS Form 982 and file it with your tax return if you do receive a 1099 from a creditor after filing bankruptcy. This lets the IRS know that you’ve discharged the debt in bankruptcy. It always helpd to get in fron of these issues so they don’t cost you more money with your accountant or lawyer later.
What do I do if my mortgage company sends me a 1099A? A 1099A is a form a secured mortgage lender may send you if you surrender your property in bankruptcy. 1099A stands for acquisition or abandonment of secured property. Don’t worry. The debt is STILL discharged and still NOT taxable to you. Remember to file Form 982 with your tax return if you receive a 1099A from your mortgage lender.
Keep copies of your bankruptcy documents
All debtors will receive copies of their petition, schedules, and order granting discharge in the mail from the bankruptcy noticing center. We’ll also email you copies of pdf copies of these documents as a courtesy if you decide to hire our firm. It’s imperative that you keep copies of these documents in a safe place. For how long, you ask. Forever. Keep them in a safe place for the remainder of your days. That may be a little bit of an exaggeration because fortunately, your documents are forever saved on the court’s electronic docketing system, but you want to be able to quickly access these documents if a creditor calls you in the future attempting to illegally collect a debt.
What bills do I pay after bankruptcy?
After you’ve received your discharge, there are, generally speaking, three types of bills you’ll still need to pay:
- Nondischargeable debts.
- Secured creditors with collateral you want to keep such as your house and car.
- Your regular monthly bills for service you continue to use such as cell phone, cable, power, water, garbage, etc.
Nondischargable debts. We’ve discussed a few types of debt, like student loans and certain taxes, that you’ll need to make arrangements to pay after your bankruptcy. Child support and alimony are never dischargeable in bankruptcy. Property settlements in your divorce decree are dischargeable in a Chapter 13, but no debts related to your divorce, including property settlements, are dischargeable in a Chapter 7. This includes contempt orders and attorneys’ fees of your ex-spouse that you’ve been ordered to pay. Whether a debt is a property settlement or domestic support obligation (alimony) is determined by the bankruptcy judge. The main issue is whether or not the debt is in the nature of support. If the debt is determined to be in the nature of support, the court will find that it’s a domestic support obligation that cannot be discharged in a Chapter 13, Chapter 7, or Chapter 11.
Secured Debts. Secured debts are debts collateralized by your property. If you pay a mortgage on your house, your house is collateral for the amount you owe on the mortgage note. If you pay a car note each month, the car serves as collateral and may be repossessed if you default on that note. If you want to keep any property that secured by a lien after bankruptcy, you must continue to pay the monthly payment because the lien survives bankruptcy despite the fact that your personal liability does not. This means that while a creditor with a debt that you did not reaffirm can never sue you personally for failing to pay the monthly payment, they still maintain their right to repossess your car or foreclose on your house to make themselves whole.
Regular Monthly Bills. This section is pretty self-explanatory. Any services you continue to use after your bankruptcy must continue to be paid. Bankruptcy only wipes out debt you incur prior to filing your case. If you continue to use your cell phone or turn on the lights, you are incurring new debt each month that must be contemporanously paid off for the use of those services.