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The lasting effects of bankruptcy

The side effects of bankruptcy include sighs of relief, reduced stress, increased disposable income, a new respect for the budget, a long-term financial plan that includes retirement, preservation of savings, a better sense of self. himself, an improved sex life, control finances, improved credit scores, just to name a few. Stop there. I know you are probably saying, “How does my credit score improve?” It seems illogical for a credit score to go up due to a bankruptcy filing, but let me explain.

Credit scores are based on so many factors in the FICO scoring system which basically include the number of business lines (how many credit cards, etc. you have), the balance owed compared to the credit limit, late charges and payments, charged out of accounts, lawsuits, etc. What happens in bankruptcy is that we eliminate the debt. The effect on your credit report is an improvement in your overall score because you no longer have high balances on your lines of credit. Although the act of filing for bankruptcy causes a decrease in the credit score, the improvement in the score comes from the elimination of debt. Many clients start receiving credit offers immediately after their bankruptcy case ends because creditors know two things: (1) that you like credit; and (2) you cannot file for bankruptcy for another eight (8) years. It is possible to rebuild and get credit after bankruptcy.

Where bankruptcy may not help

Bankruptcy does not necessarily erase all financial responsibilities. If you’ve fallen behind on these debts, a court-approved debt settlement plan pursuant to Chapter 13 of the Code can help you catch up on your bills. Generally, you do not discharge the following types of debts and obligations:

  • Alimony
  • Child support
  • Debts arising after bankruptcy is filed
  • Some debts incurred in the six months prior to filing for bankruptcy
  • Fraudulently obtained loans
  • Drunk Driving Personal Injury Debts
  • Debts for willful and malicious injuries to people or property.
  • Some student loans
  • Some taxes

In conclusion, bankruptcy is a powerful tool to help you regain financial control, whether through a court-approved payment plan or the complete elimination of unpaid debts. Bankruptcy can save time and resources from being used to pay bills. For example, you can keep your home, cars, and retirement accounts and still get rid of debt. You can remove the bonds against your house, pay all or part of your debts without interest. The side effects of bankruptcy can far outweigh the long-lasting effects of doing nothing or taking more than five (5) years to get out of debt.

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