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Your Life After Bankruptcy

A woman adds up receipts on a large calculatorThrough August 2021, there have been 10,439 personal bankruptcy filings in the state of Tennessee. These filings are split fairly evenly between liquidation plans (53%) and reorganization plans (47%), according to American Bankruptcy Institute (ABI) data.

Liquidation plans, formally known as Chapter 7 bankruptcy, are generally over quickly, but they can mean the loss of non-exempt personal assets, as these assets will be sold to pay creditors. A Chapter 13 bankruptcy, in contrast, allows the filer to retain most if not all of their assets as long as they can pay their debt off over a three- to five-year period.

Both options provide a fresh financial start once the bankruptcy process concludes and the filer's debt is discharged. Meaning that they no longer are personally responsible for their debts. The fresh start means the filer no longer has the burden of the old debts and can begin rebuilding their credit and moving on in life without dealing with harassing phone calls or a cloud of debt over their heads.

If you’re considering bankruptcy, or have been discharged and have questions about life after bankruptcy, contact me, Steven C. Frazier, Attorney At Law. I proudly serve clients in Kingsport, Tennessee, as well as Church Hill, Johnson City, Bristol, or really anywhere in Northeastern Tennessee. I can answer all your questions and help you file for bankruptcy and emerge successfully after discharge.

Bankruptcy and Your Debt Obligations

You no doubt wouldn’t consider bankruptcy if you’re confident that you can handle your debt load and see a clear path ahead, but when you start falling behind or juggling payments to creditors, the phone will start ringing and text messages, emails, and demand letters will follow, as creditors seek payment. A bankruptcy filing, with what is called its “automatic stay,” will stop these calls and other collection efforts.

If you’re filing Chapter 13, you can consolidate all of your obligations into one monthly payment based on your disposable income, meaning your payments and obligations may be dramatically reduced. You will then have three to five years to pay off the balance before you are discharged from bankruptcy. All the while not having to worry about being sued unexpectedly. NO other debt consolidation or debt relief plan or firm can make you that promise.

If you are behind on car or home payments, you can include the arrears amount (what you are behind) in your consolidated debt. You will still have to make full monthly payments for your car loan and mortgage going forward. Most of time, assuming there is less than five years remaining on the loan, the payments on the car can be reduced. This is because the time for payment can be extended and, if you have a high interest loan, the interest rate can be reduced.

When you file Chapter 7, all nonexempt assets are subject to be sold off to pay creditors. Your clothing and personal possessions are exempt, as are retirement accounts, tools of the trade, and $10,000 in a “wildcard exemption” for other personal property (personal property is everything besides real estate). When it comes to your home, you can exempt anywhere from $7,500 to $25,000 in equity, depending on your age and family circumstances. You and your spouse may even be able to exempt up to $50,000 if you have minor children you are responsible for.

It is true that under Chapter 7, if your home equity exceeds your exemption, your home could be sold to pay creditors. You would be able to retain your exempt equity. Equity is the value of your home less the amount you owe on it. This is not a problem for most people but when it is there are other alternatives.

To be honest, there are very few what we call "asset Chapter 7s." An "asset Chapter 7" is a case where people lose property. Most of the time it is in situations where the person does not want to keep the property anyway. Otherwise, we go another route. That is why the vast majority of Chapter 7s are "no asset" cases.

You will typically be discharged from a Chapter 7 filing in less than six months. That does not necessarily mean the case is over. The case will remain open to allow the Trustee to deal with assets if necessary.

After Discharge: Rebuilding Your Credit and Your Life

Although a bankruptcy filing will be a hit on your credit score and will be noted on your credit report for years, it is not the end of the world. Many people receive credit card offers even before they get their discharge. In fact, many people's credit scores go up after they receive their discharge. This is because your debts will be listed as discharged and will show no balance owed. that makes you a better credit risk to lenders. This is even though a Chapter 13 filing stays on your record for seven years, and a Chapter 7 for ten years. It’s then time to start rebuilding your credit.

Under Chapter 13, it is sometimes possible to assume new credit liabilities before your case is discharged, but you would need the approval of the bankruptcy court. Under Chapter 7 in the Eastern District of Tennessee, can start almost immediately after filing to rebuild your credit but it is usually best to wait until after you have received your discharge. Then you will be free to move on.

Beware of Credit Cards

Sometimes, soon after your discharge, you may receive credit card offerings in the mail, but read the fine print carefully. These offers usually come with exceedingly high interest rates (above and beyond 20%) and onerous annual fees, to say nothing of low credit limits — maybe just a few hundred dollars.

Credit-Builder Loans

Fortunately, there are more proven and established ways of rebuilding your credit. One way is to take a credit-builder loan at a credit union. You borrow a small amount — usually about $1,000 — which is placed in a savings account to earn interest. You make monthly payments until the $1,000 is paid back with interest. The monthly payments help raise your credit score, and after you’ve paid everything back, the money is yours.

Secured Credit Cards

Another route is to apply for a secured credit card. In this scenario, you give the bank or credit union a down payment — cash deposited to establish your credit card limit. In other words, you use your own money as funding for future credit transactions. If after that you access your secured card monthly and pay it in full each time, you can help build up your credit score.

After you’ve done one or both of the above for a year or two, you will start getting legitimate credit card offers. They may still require minimal yearly fees, but the interest rates will be more in line with cards obtained by more creditworthy individuals.

The main point in recovering your credit standing is not to repeat the mistakes that got you into bankruptcy in the first place. Don’t overextend your credit, and don’t use your cards for “instant gratification” when life is dealing you lemons. Be frugal and practical, and make the most of your fresh start.

Get the Experienced Legal Guidance You Deserve

I have more than four decades of experience in helping consumers with debt issues and bankruptcy filings. Whether you’re considering bankruptcy or contemplating your best steps after discharge, I will meet with you, discuss your situation, weigh your options, and provide practical guidance going forward.

If you do need to file for Chapter 7 or Chapter 13, I will handle all the paperwork and provide legal assistance as needed while you navigate the process. It’s not something you want to handle alone. Bankruptcy can be arduous and emotionally draining. Then after you get your discharge I will help you start down the path to rebuilding your credit score the right way.

Remember to call and ask for your free copy of my new book, Serious Answers to Serious Questions About Bankruptcy in Tennessee. Or send me a request that includes your name, address, email address, and telephone number. Other details are on the home page.

Steven C. Frazier, Attorney at Law proudly serves clients in Kingsport, Bristol, Church Hill, Johnson City, and throughout Northeastern Tennessee.

I am looking forward to helping you get out of debt and move forward with your life.