During the years before the Recession, many Americans felt there was nowhere to go but up, and upgraded their homes, their vacations and their debt balances. After the Recession occurred, these Americans were hit with lay-offs, home foreclosure and overwhelming debt. Prior to 2008, bankruptcy was seen as an admission of financial failure; now, many perceive bankruptcy as a smart way out of burdensome debt.
It is true that life will look quite different before and after bankruptcy. Chapter 7 bankruptcy completely liquidates debt, wiping one’s financial records clean. Many behavioral changes are required to avoid falling into the same debt-accruing habits one had prior to filing. Chapter 13 bankruptcy consolidates debts into one monthly payment and requires debtors to make smart financial changes to be able to make that payment.
Bankruptcy puts limits on how much can be borrowed after one files, but often those who file find it easy to obtain credit a few months to a year after filing for bankruptcy. For both Chapter 7 and Chapter 13 bankruptcy, it is important that the debtor get off on a good foot after filing to prove to banks that he or she is not the financial risk he or she once was.
Under Chapter 7, filers can do what they wish with their money after bankruptcy, but the bankruptcy stays on their financial record for 10 years. This means higher rates and stiffer penalties starting out, but once a filer proves they have changed their ways, rates usually go down. Under Chapter 13, a filer needs permission to take on credit or a large loan like a car loan during the early period after bankruptcy, and the bankruptcy stays on a filer’s record for five to seven years. However, if a filer can prove that he or she has become more financially responsible, he or she will eventually have an easier time building credit at reasonable rates.
Many Americans find that bankruptcy is a good option when they are drowning in debt. Recovering from bankruptcy may take some time, but this period does not last forever, and those who that can prove that they have improved their financial behavior and handle their money responsibly will find that banks and credit card companies will react positively, too.
