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26 Feb 2014

Bankruptcy Filers: Responsible Citizens or Escapists?

In some circles, bankruptcy is viewed as a taboo subject. People immediately assume that those who file for personal bankruptcy are simply irresponsible with money or they are trying to escape from paying their bills. In reality, however, this is rarely the case.


Bankruptcy attorneys and other financial experts are quick to point out how many successful people they know who have filed for bankruptcy in the past. The fact is that bankruptcy offers an individual protection from creditors who might otherwise place an enormous burden on them.

Without bankruptcy protection, people who are saddled with debt would be at the mercy of their creditors, who could file judgments, garnish wages and place liens on their property. Bankruptcy allows an individual the opportunity to prove to their creditors that he or she is not capable of meeting expenses, while allowing him or her to make an attempt at restitution.

Why is an attempt at restitution so important?

Bankruptcy filers are often judged harshly by those who assume they are just trying to escape debt. They wrongly believe that one's personal bankruptcy allows them to get off the hook completely. While some of the filer's debts may be discharged in Chapter 7 and Chapter 13 bankruptcy, the court still requires them to make an attempt at restitution. In a Chapter 7 bankruptcy, the filer must forfeit any assets that are not protected, or exempt, by state bankruptcy laws. The proceeds from the sale of these assets is then used to pay back creditors. In Chapter 13 bankruptcy, filers are expected to create a repayment plan with the court, which essentially settles their debts over a period of 3 to 5 years.

While restitution may not be complete, it is an important aspect to bankruptcy protection because it requires the filer to bear some responsibility instead of walking away debt-free. Personal bankruptcy is certainly not something one should aspire to, but for most people it is a much better alternative than hiding from creditors. It offers protection from creditors and it offers a means to a fresh start. It is wise for those seeking protection to work directly with a Colorado Springs bankruptcy attorney for advice on starting the process.

How will bankruptcy affect your credit score?

Even those who are willing to deal with the emotional repercussions of bankruptcy might not be so thrilled about the damage it will do to their credit score. In fact, other than emotional stress, credit score is what filers worry about the most. It is true that a bankruptcy filing can show up on your credit score for up to ten years, so If you find that bankruptcy protection is the best option for your financial future you will want to start repairing your credit score as soon as possible.

The following are a few considerations to help Colorado residents with repairing their credit score.

  • It is not uncommon for credit reports to be inaccurate, so bankruptcy filers should first get copies of their "pre-bankruptcy" credit reports. This helps to ensure that any closed accounts are listed as such, and the debts listed actually belong on the report.
  • Each of the three largest credit bureaus is required to provide individuals with one free credit report per year. Individuals are encouraged to take advantage of this, so if something is amiss it can be disputed and changed right away.
  • While one might worry about getting another credit card immediately after bankruptcy, it is probably a good idea to do so. A secured credit card is backed up by a deposit put down by the cardholder, meaning the line of credit is the same amount as the deposit. Because of this, most people are approved for this type of card. It is just one way to that people rebuild their credit score.
  • Pay your bills on time. This may seem pretty obvious, but it important to carry it out. It might mean developing new habits, cutting back on extras and sticking to a payment schedule, but it will gradually rebuild your credit score. Remember, 35% of your credit score is attributable to payment history.

Finally, if you are considering bankruptcy in Colorado, consult with an experienced Colorado Springs bankruptcy lawyer. Be prepared to ask questions and learn about all of your options before making a decision.

 

Stephen H. Swift

Managing Attorney
Law Office of Stephen H. Swift, P.C.

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