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Philadelphia Bankruptcy Attorney Dan Mueller of Harborstone Law Group represents consumers in bankruptcy and debt negotiation matters throughout Philadelphia, Montgomery County, Delaware County, and Bucks County in Pennsylvania.

The Bankruptcy Discharge And Beyond: What To Do After Your Bankruptcy

Following Your Bankruptcy DischargeCongratulations, you have received your bankruptcy discharge at the end of your Chapter 7 or Chapter 13 case. You are anxious to get a fresh start. What should you do next? Here are a few steps you should take to rebuild your credit, ensure financial future, and make sure you get the most from your new debt-free status:

Keep Copies of Your Bankruptcy Paperwork. It is important to keep copies of your bankruptcy petition, schedules, and order of discharge for your records. You can retrieve these documents from the court later, if you lose them. However, it may cost you and can be a bit of a hassle.

Why keep your paperwork? Although it does not happen every day, creditors have been known to try to collect on a debt that has been discharged in bankruptcy. As I tell my Philadelphia area bankruptcy clients, if any creditors try to collect after your bankruptcy, you can beat them into submission with the discharge. (Creditors can get into serious trouble for harassing you after your bankruptcy.) Moreover, as we will discuss below, you may need your paperwork to correct any issues with your credit report.

Check Your Credit Report. I suggest checking your credit report a few months after you receive your bankruptcy discharge. (It takes a while for the credit-reporting agencies to update your report.) You can get a free copy of your report once a year from each of the major agencies at www.annualcreditreport.com. Every debt discharged in your bankruptcy should be noted as “discharged in bankruptcy” or something similar. If a debt is still listed as owed, you can send a copy of your discharge to the credit-reporting agency along with the schedule (D, E, or F) that lists the debt.

Make Arrangements To Pay Any Non-dischargeable Debts. If you have non-dischargeable debts, such as student loans or certain taxes, you will need to contact the creditor to make arrangements to pay them. As to student loans, you should receive a forbearance for the time that you were in bankruptcy. There are various programs to lesson the burden of student loan payments, including income-based repayment, which you may wish to explore.

Regarding non-discharegeable income taxes, contact the IRS, state revenue department (e.g., the Pennsylvania Department of Revenue), or the local taxing authority to make payment arrangements. (The IRS will typically accept a monthly payment of around 2% of the total.) However, if you have a substantial tax debt, you may need the assistance of an attorney to work out a settlement.

Start Rebuilding Your Credit. To rebuild your credit, you may wish to obtain a secured credit card. A secured credit card uses money deposited in a bank account as collateral for the credit card. (Note that a secured credit card is not the same thing as a prepaid credit card. Pre-paid credit cards do nothing to improve your credit.) Some creditors offering secured cards do not require a credit check and may be easier to obtain. However, do shop around. A number of secured card providers charge excessive fees and interest. Also, you should make sure the provider reports to all three credit reporting agencies.

However, it is important to use no more than 10% to 20% of your available credit. So, if you have a limit of $500, avoid running a balance of more than $100 on the card at any one time. The purpose of this card is to rebuild your credit, so responsible use is key. I do not recommend getting multiple cards. If you are a couple, it is fine to have a separate card for each of you. However, one credit card should be enough for anyone.The creditor can take the money in the account only if you default.

If you need a car, financing an vehicle can also help you rebuild your credit. Vehicle financing is generally more available after bankruptcy than other types of credit, although you may need to shop around for an reasonable interest rate. However, it is important to keep your payment reasonable. Moreover, new cars are a horrible investment. So, it is best to limit your purchase to an inexpensive used car.

Quick Note: You may receive solicitations from “credit repair” companies. They are scammers. Concentrate on rebuilding your credit systematically over time.

Make Timely Payments, If Keeping A House. If you did not reaffirm your home mortgage loans but plan to keep your property, simply continue to make your house payments on time (on all mortgages). The bank still has a lien on your home. Therefore, it can foreclose, if you fall behind on the payments. However, because you did not reaffirm the debt, the bank cannot obtain a deficiency judgment against you. Note that if you did not reaffirm the debt, your payments (or non-payments) it will not be reported to the credit bureau.

Quick Note: Can you walk away from your home after bankruptcy? As we discussed early in the bankruptcy process, not reaffirming a mortgage loan gives you options you would not have if you reaffirmed the loan. If you did not reaffirm your mortgage loan and decide at a later date that you no longer wish to keep your home, you can simply stop making the payments. Eventually, the home will go into foreclosure. Just know that if you decide to walk away from your home, you are responsible for any homeowner’s association fees and for keeping the property up to code until the property transfers to a new owner. In addition, you have potential liability for injuries to persons and other properties. Homeowners insurance placed on the property by the bank when you stop making payments may cover only the bank’s interest. Therefore, you may consider keeping your current policy in place until the deed is transferred. Also, note that the foreclosure may or may not be reported on your credit report. However, the debt is discharged.

Make Timely Payments, If Keeping A Car. If you have a car loan that you did not reaffirm, simply continue to make timely payments, if you wish to keep the car. The lender retains a lien on your car and can repossess, if you get behind.

Quick Note: Can you return your vehicle after bankruptcy? If you did not reaffirm your vehicle loan and no longer wish to keep your vehicle, you can arrange to turn it over to the lender (a voluntary repossession). As long as you did not reaffirm the debt in your bankruptcy, the creditor cannot obtain a deficiency judgment.

Update Your Will.  Because your financial situation has changed, I recommend that you review your will to see if it needs to be revised. If you do not have a will, you may wish to have an attorney draft one. In my Philadelphia area bankruptcy practice, I am always happy to refer my clients to an estates attorney who can revise or draft one at a very reasonable cost.

Set Up A Savings Plan. On other words, pay yourself first. Even if it is only a few dollars per pay period, try to put back a little for emergencies as soon as you are able. For many people who have been out of work or otherwise financially devastated, it can be hard to imagine being able to save again. However, even a small amount can add up over the long run.

Contribute To A Retirement Plan. If you already have a 401k or other retirement plan, try to contribute as much as possible (at least as much as your employer matches.) Of course, if you can max out your contributions, so much the better. However, as with general savings, even small contributions add up over time. If you do not have an employer-based plan, consider opening a no-fee or low-fee IRA and making regular months contributions that come out of your account automatically on the day you are paid. The key to retirement savings is to set up the account so you never see the money.

If you take care of these few items after your bankruptcy, you will be well on your way to a better financial future.

 

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43 comments to The Bankruptcy Discharge And Beyond: What To Do After Your Bankruptcy

  • Dana

    If I had to reaffirm a loan and couldnt afford the payments after bankruptcy can the bank file a judgment? (I was told that any loan open within 60 days of filing couldnt be included in the bankruptcy.)

    • Generally, if you reaffirm a loan in bankruptcy and later default, the creditor can take any action permitted under the law. Such remedies include filing suit against you and obtaining a judgment. When you reaffirm a debt, for that debt it is as if you never filed for bankruptcy. You have sixty days from the date of the reaffirmation or the date of discharge (whichever is later), to rescind the agreement by giving notice to the creditor. However, if the creditor agreed to a reaffirmation in lieu to resolve an objection, rescinding the agreement may give rise to some other legal action, depending upon how the matter was resolved. You should discuss this issue with your bankruptcy attorney.

      As to the second part of your question, loans opened shortly before filing (typically up to 90 days prior) are presumed to be taken in anticipation of bankruptcy and may be non-dischargeable. Likewise, cash advances taken on credit cards and credit card purchases for non-necessities within seventy days or so of filing may be non-dischargeable. The larger this type of debt, the more likely it is to draw a creditor’s objection to discharge. I typically advise clients to assume that that any such charges within 90 days of filing will be problematic. Moreover, some credit transactions (such as unusually large multiple cash advances) within six months to a year of bankruptcy may be suspect under some circumstances.

  • Tamera

    My Chapter 7 bankruptcy was discharged in 2012. I did not reaffirm my auto loan, on which I had less than a year to pay off at the time. I have since paid the truck off and have held title to it for 2 years. I’m in the process of trying to get preapproved to buy a home. Will the bank consider the fact that I actually paid off the auto loan even though it shows “included in bankruptcy” on my credit report? Is there any way I can use the payoff to assist me?

    • The disadvantages of reaffirming a debt in bankruptcy generally outweigh the advantages. However, when you do not reaffirm, payments on that debt are not reported to the credit bureaus. Perhaps an individual creditors will consider a post-bankruptcy payment history that the debtor obtained from the creditor. However, it would be better to concentrate on doing the things that will raise your credit rating over time, such as the responsible use of a secured credit card (never using more than 10% to 20% of the available credit, paying onetime each month, etc.). It takes a fair amount of time and effort to rebuild credit.

  • stephen

    I had a Chapter 7 bankruptcy and received a discharge. However a collection agency reported an open judgemnt on credit report a month after it was discharged! One credit agency deleted but two have not. I have disputed. How or what to do?

    • Stephen,

      I assume you mean a judgment that the creditor obtained before you filed for bankruptcy. In most cases, bankruptcy discharges the underlying debt but not the pre-bankruptcy judgment lien. Therefore, even though the debt may be listed as discharged in bankruptcy, the judgment may still show on your report. Additional steps are necessary to get rid of judgment liens either during the bankruptcy or after discharge, depending upon the case. If a debtor had no real property when he or she filed, the debtor may take the discharge and the schedule listing the debt to the clerk of the court where the judgment was entered and have it marked satisfied. However, if the debtor owned real property at the time of filing, the lien would remain on the real property after discharge, unless the debtor filed a motion in bankruptcy court and obtained an order avoiding the lien.

      As for disputing the debt, you can and should do so, supplying copies of the discharge and appropriate schedules as necessary. However, if the judgments were never marked satisfied or avoided, they may continue to pop up on your credit report for up to seven years.

  • Keith

    I have an auto loan question. If I file Chapter 7 and don’t reaffirm the car loan, but continue to make regular payments, I know that … the debt will show as “discharged through bankruptcy” or similar. My question is, as I continue to make the payments to keep the car, will the bank report the payments as being made, or they just won’t since the debt is discharged?

    Thanks!

    • Keith,

      Generally, if you do not reaffirm the loan, the bank will not report any post-filing payments to the credit bureaus. (Likewise, because the debt is discharged, the bank cannot report any late payments.) However, the advantage of not being on the hook for the loan, if there is a financial setback (or an issue with the vehicle), usually outweighs any credit benefit received by reaffirming the loan. For that reason, most debtors choose not to reaffirm auto loans.

      Regards,

      Dan

  • Rich

    My home was surrendered in a Chapter 13 and I have received a discharge. It is now showing … with the full balance due. How should the mortgage show on my credit report after discharge? And may it show a foreclosure, even if it was surrendered.

    Thanks

    • Rich,

      Generally, a home loan discharged in a bankruptcy should be listed “discharged in bankruptcy” or something similar. The foreclosure may or may not show up on the report (typically in the public records section). Whether a bank can report a post-dicharge foreclosure is a question that the courts have not fully answered. However, the important thing is to make sure the debt is listed as discharged. If it is not, you need to contact the credit bureaus to correct it.

      Dan

  • Jim

    I’m three months away from the end of my Chapt 13 case, and I was wondering what happened after I make my last payment? Is there another meeting or court date that I will have to attend?

    • Jim,

      In the Eastern District of Pennsylvania, there is no hearing to attend after completion of a Chapter 13 case. However, you must complete and sign a certification stating that you mades all plan payments, paid all domestic support obligations (if any), took the debtor education/financial management course, etc. Failure to complete and sign the certification in a timely manner will lead to dismissal of the case without discharge, even though the debtor made all plan payments.

      Dan

  • Leslie

    In 2007, I had car get repossessed. I never heard from the creditor prior to filing for Chapter 13, which I filed about a year after the repossession. I put car repo balance in Chapter 13. It has been more than five years since the repossession and a year since I was discharged, and I got a letter from the creditor saying I still owe them.

    • Leslie,

      You should speak to your bankruptcy attorney. I am assuming from your question that the creditor did not obtain a judgment prior to the bankruptcy. As long a dischargeable debt is properly listed, and the creditor is given notice of the Chapter 13 bankruptcy, any remaining balance on the debt would be discharged upon completion of the Chapter 13. Any attempt to collect such a debt is a violation of the discharge and could result in the creditor paying damages and attorney’s fees. It may also be a violation of the federal Fair Debt Collection Practices act or other consumer law.

      A problem could arise if the the creditor obtained a judgment prior to the debtor’s bankruptcy filing, particularly if the debtor owns real property or non-exempt personal property. The underlying debt is discharged, but any judgment lien remains. Judgments survive bankruptcy, unless avoided by filing a motion during the bankruptcy. (In a no-asset case, judgments are not generally a problem, as the debtor can simply take the discharge to the court where the judgment was issued and have it marked as satisfied.)

  • SHAWNISE HALL

    If I make timely payments on my auto loan after discharge but did not reaffirm the debt, can they take my car back any time?

    • Most auto lenders will permit you to keep a vehicle after bankruptcy without reaffirming the debt, as long as you remain current on the loan. However, there are a few auto lenders (Ford Motor Credit comes to mind) who require the debtor to sign a reaffirmation agreement in order to keep the vehicle. Also, some companies may have a different policy for leases than they do for loans. I make it a practice to contact the lender early in the bankruptcy process to determine the lender’s policy, so the debtor can make an informed decision about reaffirmation. Once you are discharged, reaffirmation is not an option.

      The major advantage of not reaffirming an auto loan is that you can walk away from the vehicle at anytime without fear of a deficiency judgment. For that reason, I generally advise clients not to reaffirm vehicle loans unless absolutely necessary.

  • Sunshyne

    If your case was discharged and a new creditor tries to collect from you, can you file that as well (even after your case being discharged)?

    • I assume by new creditor, you mean one that you did not list in your schedules. How to handle this issue depends upon the policy in district where you filed. In the Eastern District of Pennsylvania, if a debtor in a no-asset Chapter 7 case forgets to list a debt, the unlisted debt is still discharged (as long as the failure to list the debt was not intentional or for fraudulent purposes). The courts in such cases reason that there would have been nothing for the unlisted creditor even if the debtor had properly listed the debt. Therefore, it would be inefficient and wasteful to require the debtor to reopen the case to add the debt. In such cases, it may just be a matter of informing the debt collector of the bankruptcy. However, in other districts, the courts have held that unlisted debts are not discharged. Therefore, it is crucial to speak to your bankruptcy attorney about this matter.

      It is sometimes possible to reopen a bankruptcy to add a debt, as long the debt arose prior to the bankruptcy filing. If the debt arose after the bankruptcy filing, you cannot typically reopen the bankruptcy case to add it.

  • Sarah

    I filed for bankruptcy but did not sign a reaffirmation for my car loan. Prior to filing, I had never been late in 2 years. After the meeting of creditors, I noticed that on my credit report I had been reported 30 days late on payment.

    • The reporting of debts as delinquent should stop on the date of filing. In other words, debts that are late after filing should not be reported to the credit bureaus, unless the debtor reaffirms the debt (and the bankruptcy court approves the reaffirmation). However, creditors are not required to remove late payments reported to the bureaus prior to the debtor’s bankruptcy filing. Once a debtor receives the discharge, the debts should be reported as discharged in bankruptcy and show a balance of $0.

      It may take a while for the bankruptcy to catch up with the credit bureaus. Therefore, I generally recommend to clients to check their credit reports a few months after discharge and dispute any errors in writing to the credit bureaus and creditor. If the creditor or the credit bureau fail to correct any errors within a reasonable period of time, it may be a violations of the federal Fair Credit Reporting Act.

  • Niko

    My bankruptcy was discharged, and now I am getting married. My future husband wants to add me to his bank credit card. Will that hurt him in a long run? Thank you

    • Typically, adding an authorized user with a bankruptcy or other credit issues to a credit card account should not impact the credit rating of the credit card holder. However, a better option may be to obtain a secured credit card and start rebuilding your own credit.

      As an aside, I recommend that couples avoid joint credit card and other unsecured debt. Joint unsecured debt reduces the options a married couple has available to them, if they run into financial problems down the road. For example, Pennsylvania’s legal doctrine of tenancy by the entireties protects the joint property of a married couple from the individual creditors of one spouse. In addition, when there are few joint consumer debts, it is often possible for only one spouse to file for bankruptcy rather than both.

    • When you surrender real estate in bankruptcy and receive a discharge, your liability on the mortgage loan is eliminated. However, the bank retains its lien on the property and can foreclose. Although your credit report will state that the loan was discharged in bankruptcy and show a balance of $0, you do not own the home free and clear. Banks very rarely waive their liens (generally only in the case of a second mortgage that is 100% under water.) Unfortunately, lengthy foreclosures on surrendered property have become too common in recent years. Sometimes you can prompt the bank into action, but more often they work at their own pace.

  • Tracy

    Hello, one of the accounts I filed bankruptcy on is trying to go after the courtesy card holder (authorized user) on the account for the balance. The account was discharged in bankruptcy and the courtesy card holder did not give a Social Security number or signature on anything with the account. The account was sold to collection agency after discharged bankruptcy. Can this collection agency come after the courtesy card holder for balance?

    • Tracy,

      In Pennsylvania, an authorized user or courtesy card holder is not generally responsible for the credit card debt. However, creditors and debt collectors often pursue the authorized users, hoping that the authorized users are unaware that they bear no responsibility for the debt. The authorized user should speak to a debtor defense attorney about this matter before speaking to the creditor. To avoid confusion and credit reporting issues down the road, I usually advise my clients to remove authorized users from credit cards before filing for bankruptcy, unless the authorized user is a spouse filing jointly with the primary cardholder.

  • gerrika

    Does the trustee get your next year’s tax return [or refund], after you file bankruptcy?

    • Generally, in a Chapter 7 case, you do not have to provide the trustee with returns that become due after your bankruptcy discharge. For example, if you file for bankruptcy in 2014, you would have to provide the 2013 return (or 2012, if your meeting of creditors takes place early in the year). However, you would not have to provide the tax forms for the 2014, which would become due after the bankruptcy is discharged.

      Keep in mind that in Chapter 7 you have to exempt your potential tax refund for the next year. If you do not exempt the refund or otherwise deal with it in your schedules, the trustee would be entitled to take it. To exempt the refund, typically, you will base the estimate on the last refund and prorate it to the date of filing. For most people this is not a major issue, unless they run out of exemptions. If you had a large tax refund in the previous year, you should review your options with your attorney before filing for bankruptcy.

  • Margarita

    Can I receive a house as an inheritance/gift from my father after my chapter 13 bankruptcy discharge?

    • A debtor has a duty to report to the trustee any inheritance received within 180 days of the bankruptcy filing. In chapter 13, this is generally not an issue because, by the time of the discharge, far more than 180 days has elapsed. It is more of an issue in a Chapter 7 case. That being said, there are situations where an inheritance could be an issue following a Chapter 13. Therefore, you must discuss this matter with your bankruptcy attorney if an inheritance or large gift is a possibility.

  • Angie V

    If you turn a vehicle into the bank many months after receiving a bankruptcy discharge and did not reaffirm the loan …, will the bank report the “repossession” to credit bureau and will it be added to the credit report? Thank you!

    • By not reaffirming the loan, you have wisely given yourself more flexibility. A creditor cannot lawfully report negative information on a discharged debt. Therefore, a vehicle repossession should not appear on your credit report. (Likewise, any late payments on a non-reaffirmed debt should not be reported.) Rather, the debt should be listed as “discharged in bankruptcy” or something similar. If the creditor does report negative information, you may have a potential cause of action against the creditor. Of course, you should discuss this matter with your attorney, if you have any questions.

  • carrie

    Rather than purchasing a home right away can I do a “land contract” on a home once my chapter 13 has been discharged? We have rented a home from my parents while in chapter 13 and we are about to be discharged. we want to have more security that the home will be ours but don’t want to pay high interest rates or jump into anything to soon.

    • A land contract allows the buyer to live on real property while making payments to the seller. The seller retains title to the property until the buyer makes the last payment, at which point the seller transfers the deed. Land contracts can be useful in some circumstances, particularly when purchasing from trusted friends or family. Sometimes, a land contract may become available before a post-bankruptcy consumer can qualify for a standard mortgage. However, because they are an avenue most often taken by buyers without the ability to obtain bank financing, land contracts can be subject to abusive terms and high interest. In addition, the buyer’s payment history may or may not be reported to the credit reporting agencies. If not, such an arrangement may not help the buyer’s credit. You should certainly discuss any proposed land contract with an attorney before entering into it.

  • How soon can I buy a house after completing Chapter 13? What is the best route and steps to take. I’ve read that its better to wait 2 years after discharge.

    • In my experience, it takes at least two or three years before a debtor can qualify for a mortgage after a bankruptcy (assuming the debtor took active steps to rebuild his or her credit and otherwise qualifies for a loan). However, the actual time depends upon a number of factors, such as the banks policies, the policies of the underwriters, and the type of loan, etc. For example, the FHA and VA will not underwrite a loan until two years after the discharge.

      For most people with a bankruptcy discharge, it does not make sense to rush into a mortgage loan. Rather, the best approach is to (1) live modestly, (2) concentrate on rebuilding your credit, and (3) put back as much money as possible for a down payment. This approach will make it easier to obtain a reasonable home loan down the road. In the meantime, there is nothing wrong with renting.

  • My bankruptcy discharge was a year ago. I want to get another car, but the interest rate is high. How do I go about getting [a lower interest rate on a car loan].

  • sonja

    Hello. All of the above information was just what I needed for a fresh start,thank you. Now which is the better credit card to start with a low apr and interest.

    • I cannot recommend a specific secure credit card. However, you will want to shop around, as interest rates and fees vary greatly. Just be sure that the creditor reports to all three credit major reporting agencies and does not charge excessive fees. Some creditors have a minimum credit score required for their secured cards, but several do not.

      Dan

  • Jane

    You answered so many of my questions. Thank you. I just wondered if I need to keep the records of bills I owed. For example, do I need to keep the credit card statements and collection agency correspondence? Thanks again.

  • John

    Thank you. I have been looking in vain to find a basic plan on what I should do … when I am done with my Chapter 13. This is a good start!

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