One of our primary goals is to ensure our clients enjoy long-term success after completing their bankruptcy case. Once your bankruptcy has been completed, you may have questions about what to expect next. We want to make sure you are equipped with the knowledge to move forward confidently.
Upon successful completion of your bankruptcy, the case is discharged. Chapter 7 discharges come about 60 days after the 341 meeting of creditors hearing. Chapter 13 discharges typically occur shortly after making all necessary payments on your bankruptcy plan, and once we confirm with the trustee that there isn’t a past due amount owed for domestic support. The following people will receive notice from the Court that your bankruptcy is discharged:
- Your attorney
- All creditors that you previously owed
- The Trustee who handled your payments and/or assets
- In a Chapter 13, your employer’s payroll department so they can stop sending payments
Whether in a Chapter 7 or Chapter 13, our office will send you a copy of the following:
- Email and mailed copy of your discharge letter. You will want to keep a copy of this since you may need it to secure financing in the future. This provides the date your discharge took place and general information on how to work with your creditors moving forward.
- List of the debts that were discharged in your bankruptcy. Creditors cannot collect on debts that were included in the discharge, so it’s important to know which debts are protected.
- A free referral to Consumer Attorneys, PLLC, who helps review your credit to assure your creditors are reporting correctly following your bankruptcy.
A Continued Helping Hand
If you have questions revolved around your bankruptcy discharge, you can access our Common Discharge Questions page by clicking here. Additionally, our team is always willing to help. We provide the following on-going support:
- Maintain records and copy of discharge for 5 years
- Answer any questions you have about your bankruptcy
- Provide referrals to other law firms for matters outside of bankruptcy
- Assessing your ability to refile if needed
Following your bankruptcy, we want to make sure you have the information to resolve any concerns that may arise. Below are some of the most common questions asked by our discharged clients.
1. Which debts will I still be responsible for after the bankruptcy?
There are some debts that are not dischargeable through bankruptcy, and therefore would be your responsibility to pay. Non-dischargeable debts include, but are not limited to:
- Many income tax obligations and related interest
- Child support and/or alimony
- Debts stemming from divorce or separation
- Fines or penalties owed to federal agencies or criminal restitution
- Student Loans
- Lawsuits that arose from driving while drunk or malicious intent
- In a chapter 13, debts not listed in the bankruptcy repayment plan
IRS Tax Obligations and Interest
In order for your tax obligations to be discharged in a Chapter 13 bankruptcy, they would have to be included in your monthly payments, unless all of the following were true:
- Not secured to property
- Not a priority tax debt
- Debt is for tax year that is more than 3 years preceding filing.
- Debtor must have filed income taxes on time.
When taxes obligations are paid through your bankruptcy case, you will receive a bill in the mail shortly after discharge. This is for the interest that accrued throughout the lifespan of your bankruptcy. The amount is due to the IRS directly and it is calculated separately from the bankruptcy. This is due to the fact that the bankruptcy laws do not allow the Trustee to pay interest to a creditor unless all other creditors are paid in full.
Child and Spousal Support
In a Chapter 7 bankruptcy, your child and/or spousal support obligations will not be discharged because they are considered a priority debt. However, if the trustee sold any of your assets, the proceeds would be applied to your domestic support obligations before non-priority debts (like credit cards). Therefore, you may still come out of the bankruptcy owing less than before.
In a Chapter 13 bankruptcy all past due domestic support obligations are paid through your plan payments. By the time you complete your plan there shouldn’t be any outstanding balance on your child or spousal support. In addition, before providing discharge, you must certify you are current on all domestic obligations.
Student loans are not generally dischargeable in bankruptcy court. If you are having troubles affording the payment on your school debts, we recommend checking with your loan servicer to discuss different repayment options including income-based repayment plans that offer forgiveness of balances.
2. Can Creditors call me after I receive my discharge?
From time to time creditors may call to collect on old debts, even if they were discharged in bankruptcy. There are different creditor calls you may receive:
- Debts discharged in bankruptcy: you’ll want to make sure the creditor is aware that this was included in your bankruptcy. They should have received a copy of your discharge letter upon completion, but if needed you can send them a copy to stop the calls.
- Debts that came along after your bankruptcy: Your bankruptcy case only includes the debts you had before filing. If you accrued additional debt during or after your case, you will be fully responsible for paying them back.
- Debts included in the bankruptcy, but not discharged: If your debt was not included in the discharge then you will still be responsible for that debt.
- Debts that started before the bankruptcy, but were not listed in the bankruptcy when originally filed: This answer will be different depending on which chapter you were filed under.
- Chapter 7: If it is a dischargeable debt like medical bills, credit cards, or other unsecured financing then it will automatically be included, even if it’s not explicitly listed in your discharge papers. You would need to send a copy of the discharge letter to the creditor trying to collect to stop the collection attempts. If the creditor persists, contact Acclaim.
- Chapter 13: You will be responsible for any secured debts not included in the bankruptcy repayment plan (such as your car or home loans). However, unsecured creditors are given a timeframe where they are permitted to submit a claim for your debt. If an unsecured creditor failed to file a claim within that deadline, then their debt will be eliminated upon discharge. Any creditor not included in the list of creditors will not be discharged.
3. What are some tips for managing and improving my credit post-bankruptcy?
We have all heard the myth before that a bankruptcy destroys your credit for at least 7 years. This is simply not true. The bankruptcy will be listed on your credit report for 7-10 years. But the amount of time it actually has an impact on the score is closer to 2-4 years from the date of discharge. While credit scores are hard to predict and based on various factors (and highly individualized), the goal of the system is to measure one’s trustworthiness to pay back a loan or other financing. The two biggest factors of your credit score are:
- Your history of on-time payments
- The amount of debt you have versus your ability to repay it.
In both instances, a bankruptcy would help by either eliminating or reorganizing your obligations.
By the end of a Chapter 7 bankruptcy you are no longer responsible for paying off your unsecured debt (such as credit cards, medical bills, etc). Eliminating these payments will free up your monthly cash flow and improve your debt-to-income ratio. In turn, your credit score will adjust to recognize this over time.
In most Chapter 13 bankruptcy cases, the Trustee takes on the responsibility of making your payments to your creditors on-time. We are often able to negotiate lower interest rates through your bankruptcy plan, so more of your payments are going towards the principal balance instead of interest. This helps resolve accounts quicker.
Upon discharge you should have a manageable budget that allows you to stay current on bills. This relief should allow you to make on-time payments and rebuild your credit. As a result, most of our clients see improvement on their credit a year following the discharge. Below are some additional steps you can take to improve your score:
- Monitor your credit to make sure each creditor is reporting correctly after the bankruptcy
- Make consistent on time payments
- Reduce your credit card usage. It’s a good idea to keep your balance below 30% of the total amount available to you. Example: A credit card approves you for $1,000. It’s a good idea to keep the balance below $300.
- Create a savings account. Use this for emergencies instead of a credit card. This will help you break the cycle of credit card debt.
- Get a secured credit card. This is different from your typical credit card, since you pay a “security deposit” to start it. However, when you’re ready to close it, that amount is refunded to you minus the amount you owe on the card.
Example: You pay $300 to get a secured credit card. That $300 is then available for you to borrow against. If you owe $100 and decide to shut the card down, then you’ll be given $200 back. ($300 security deposit - $100 owed)
- Try a credit-builder loan. This is not the traditional loan where you receive one lump sum upfront then pay it back monthly. These loans are specifically meant for people who have trouble getting approved by the bank. Credit-builder loans put the borrowed money in an account under the borrower’s name. Every month the borrower makes their monthly payment. Once the full amount is paid off, it is disbursed to the borrower, minus interest and fees. In the meantime, the monthly payments are reported positively, assuming they’re paid on time.
- Become an authorized user on a friend or family member who is financially stable. Then you’ll receive credit for their on-time payments.
4. Will I be able to get new financing after I complete my bankruptcy?
Upon discharge you are welcome to open new credit cards or secure new debts. In fact, it’s likely you will be bombarded with new offers. However, it may be a little while until you have a good interest rate. We encourage you to wait until lower interest rates are being offered.
If you plan to purchase a car it normally takes about a year for the rate to become reasonable again. With a house this normally takes about 2 years for FHA eligibility. If you choose to get a credit card we recommend going with a credit union.
Monitoring Credit Report
Unfortunately, individuals who undergo a bankruptcy have a higher chance of seeing improper reporting on their credit report. Below are the most common credit issues following a bankruptcy
- The discharge of the debt not labeled correctly. Most common mistake is labeling as “charged off” instead of “discharged in bankruptcy.”
- Creditors doing a “hard pull” on your credit even though they did not have your permission to do so.
- Debts showing as “included in bankruptcy” when they were not. Most commonly happens on individuals who have a spouse that filed for bankruptcy, but they did not.
- Having reaffirmed debts listed as if they were discharged in bankruptcy.
To protect our clients, we have collaborated with a credit specialist team, Consumer Attorneys, PLLC, who help clients review their credit, pinpoint any errors, and have them rectified in a timely manner when needed. If this is something you’re interested in, you are welcome to contact our office for a free referral to their team.