Chapter 7 Bankruptcy Impact

A Legal Resource for Your Bankruptcy Questions

Keeping Your House

As long as you are current, or can quickly become current, on your house payments and there is no excess equity in your house, you should be able to file Chapter 7 bankruptcy and keep your house. An individual is able to protect $35,000 of equity or a married couple may protect $70,000 equity if the home is deeded in both spouses’ names.

Keeping Your Car

As long as you are current on your car payments and there is no excess equity in your car, you should be able to keep your car. You are able to protect $3,500 equity in a car and possibly up to $8,500 depending on your specific situation. If married and you and your spouse each have a car registered in each of your names, you may each protect $3,500 equity in each car.

Keeping Your Business

In most cases, you can keep your business. There are many factors when it comes to retaining a business, so it is best to seek legal advice specific to your situation.

Creditor Harassment

Once your bankruptcy is filed with the bankruptcy court, an automatic stay goes into effect stopping creditors from contacting you and proceeding with foreclosure, repossession and other legal actions including enforcement of a lien. Debts you incur after filing bankruptcy are not included in the automatic stay and those creditors have the right to contact you and take collection actions against you.

Medical Debt

Medical debt can be eliminated in bankruptcy. If you are married and the medical debt was incurred while you were married, both you and your spouse are responsible for the debt. As a result, if only one spouse files bankruptcy, the other non-filing spouse would still be responsible for the medical debt. It is also important to determine whether the medical provider has obtained a judgment lien against you. If they have obtained a judgment lien and you own a house, additional legal paperwork may need to be filed to void or eliminate the lien. It is important you discuss this with your attorney.

Credit Rating

It is important to differentiate between your credit score and your ability to obtain credit. Your credit score is the number the credit reporting agencies assign to your credit. It is based on your history of making payments on your debts. Your ability to obtain credit is based on your ability to make payments in the future and looks at your income and your debts. If your debts exceed your ability to make payments, you may be unable to obtain credit even if you have consistently paid your debts on a timely basis and have a good credit score. Filing bankruptcy will eliminate many of your debts and will improve your ability to obtain credit in the future. However, your credit scores will suffer initially after filing bankruptcy.

Life After Bankruptcy

Once you complete your bankruptcy and you have received a discharge of debts and final decree, it is time to reestablish your credit. If you kept a house or car and reaffirmed that debt in your bankruptcy, you will immediately start rebuilding your credit with timely payments to your mortgage company(ies) and finance company. If you surrendered your house and/or car in your bankruptcy and you no longer have any secured debt payments, we suggest you obtain a credit card to help reestablish your credit. Obviously, the idea is to only charge items on the credit card you can payoff each month. Some credit agencies will tell you to pay all but $5 on the account so that you have a small balance each month. Obviously, we are not suggesting that you start accumulating debt after filing your bankruptcy, but obtaining a credit card is a great way to reestablish your credit.