What Positive Outcomes Do Clients See After Filing For Bankruptcy?


The most important outcome after filing for bankruptcy is simply peace of mind. Most of the individuals that we work with are coming to us at a point of great stress. They’re usually receiving a lot of phone calls and dealing with a lot of court correspondence, which may not make sense. The bankruptcy really has the ability to take all of those challenges and find a resolution. Oftentimes, that means eliminating the underlying debt in order to discontinue the phone calls or finding manageable ways of controlling the debt. There is also the objective side of that, which is just truly reformatting a bankruptcy filer’s personal balance sheet. That involves taking a lot of the obligation on the bad side of the scale and looking at it in a way that is going to be much more manageable.

For How Many Years Does A Bankruptcy Stay On Someone’s Credit Score?

A bankruptcy can stay on a credit report for up to 10 years, but I want to demystify the idea that a credit score is totally in the garbage for the entirety of that 10-year period. That’s just not true. A credit score and a credit report is a compilation of a lot of information. It’s the total amount of debt that you have, your payment history and other public record information. Most of our clients are coming to us with troubled credit to begin with. Bankruptcy clears the field so that bankruptcy filers can start fresh. It allows them to create new, positive information on their credit report and rehabilitate relatively rapidly.

How Does A Bankruptcy Impact A Person Or A Company’s Credit Score?

In isolation, a bankruptcy does have a negative impact on credit. But contextually, most people who file bankruptcy have troubled credit to begin with. The actual numerical impact of the bankruptcy will vary, so the general rule of thumb is that the higher a credit score starts off, the greater the numerical impact of any one event. Conversely, if someone has a relatively impaired credit score (which bankruptcy filers often do), then bankruptcy isn’t going to have as much of a numerical impact. But again, the broader picture is that bankruptcy clears the field so that a filer is in a position where they can rebuild their credit score relatively quickly.

How Many Years Would It Take Someone To Rebuild Their Credit Score After A Bankruptcy?

A typical bankruptcy filer could have a stronger credit score than when they started within two years of filing for bankruptcy. However, there are a couple of points that need to be made on that topic. First, there are things that can be done to proactively allow for more progressive credit rebuilding. One of those things is to review your credit report after the discharge has been entered to ensure that all of the old debts are correctly reported. The second component is to look for opportunities to create positive information on the credit report. For example, if someone has reaffirmed a vehicle loan within the bankruptcy, then you’re going to see payments on the vehicle that will reflect on the credit report after the bankruptcy is complete. Alternatively, filers could take out what’s called a secured credit card, which is a credit card that requires you to first put down a deposit. That ensures that the credit card is paid off in full every single month that it is being used. That will create for positive credit history after the bankruptcy is complete and allow for the credit score to increase relatively quickly.

Will I Have To Pay Any Sort Of Income Tax On Debt Discharged In The Bankruptcy?

While I have to caution that we don’t provide tax advice, a discharged debt (a debt that’s eliminated through bankruptcy) is treated differently than debt that is written off or debt for which a lender may issue a 1099. Typically, discharged debt does not create a taxable event. A consumer should consult with their tax profession on the impact of debt relief options on their tax liability.

How Long Does It Take Someone To Qualify as A Mortgage After A Bankruptcy?

The mortgage qualification is really in the hands of the lender, but there are many lenders and/or loans, such as Fannie Mae and VA loans, that will not offer lending for at least two years after a bankruptcy.

Will A Bankruptcy Impact Any Job Opportunities?

Although it is illegal for employers to discriminate on employability based on bankruptcy, there are some specific industries in which bankruptcy may have an impact. In some circumstances, bankruptcy filing may have an impact on security clearances or various financial certifications, and it may impact other specific industries as well.

For more information on Positive Outcomes After Bankruptcy, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.

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