F is for Fresh Start

What fresh start? How does bankruptcy work to give me a “fresh start”?

Debtors obtain a fresh start because once the bankruptcy is filed creditors can no longer harass them due to the automatic stay. Later most debt is liquidated or discharged. A discharge is the legal elimination of debt through a bankruptcy case: the debt is no longer legally enforceable against the debtor. This permanent order prohibits the creditors from taking any form of collection action on discharged debts including legal action and communications with the debtor, such as telephone calls, letters and personal contacts.

Discharged Debts

Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided will remain after the bankruptcy case. Therefore a secured creditor may enforce the lien to recover the secured property. This is why you must maintain the mortgage payments if you want to keep your house and the car payments to keep the car. (Some lenders may also require a reaffirmation agreement.)

Not all debts are discharged. Certain tax claims, debts not listed in the bankruptcy paperwork, debts for child or spousal support, debts for fines and penalties, educational or student loans, debts for personal injury caused by the debtor’s operation of a motor vehicle while under the intoxicated and debts for certain condominium fees are among those not discharged.

You cannot get a Chapter 7 discharge of your debts more often than every eight years. It is your ace in the hole and not to be played lightly. However if you need the assistance of the Bankruptcy Court and the relief a “fresh start” can give it is a very useful tool.

Even if the debt is discharged you may still pay the debt after the bankruptcy case has been closed. There are times you might want to pay a debt even though it has been discharged because it is owed to a family member or treating physician. This is your decision.

Debt Follow Up After Bankruptcy

Part of the fresh start will depend on your follow up after you receive your bankruptcy discharge. Debtors need to review their credit reports approximately two to three months after the discharge. It usually takes one to two months before the credit report reflects the bankruptcy discharge. The accounts should be reported as discharged in bankruptcy and show a zero balance. Any incorrect reporting should be contested. The sooner you are aware of any mistakes, the sooner you can begin to take the steps necessary to repair the credit report.

As more and more prospective employers and insurance companies use credit reports in decision-making, the more important it is to correct these errors.

Under the Fair Credit Reporting Act (FCRA), credit bureaus and creditors have a duty to correct inaccurate information. You should request a copy of your credit report from each of the three credit bureaus and review the information listed:

Experian
P.O. Box 2104
Allen, TX 75013
www.experian.com
 
Equifax
P.O. Box 74021
Atlanta, GA 30374
www.equifax.com
 
Trans Union
P.O. Box 2000
Chester, PA 19022
www.transunion.com
 

More Bankruptcy F’s:

Image Credit: Leo Reynolds

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