What will your life be like after filing for bankruptcy protection? You've probably heard the words "fresh start" before. But what do those words mean when it comes to the nuts and bolts of living with a recent bankruptcy on your credit reports?
Here are some of the changes you can expect.
YOUR CREDIT SCORE WILL IMPROVE
Perhaps the thing that surprises people most is the improvement in their credit scores. According to a recently-published statistical analysis by the Federal Reserve Bank of New York, bankruptcy filers saw an improvement in their scores in the first year after filing. This is largely because filers have a much better debt-to-income ratio after their old debts are eliminated.
Things can get better even faster if you take steps to clean up your credit after bankruptcy.
SOME DEBTS MAY LINGER
With some exceptions, your student loans and income tax debts will not be discharged. And you will still be obliged to pay any domestic support obligations. BUT, you will undoubtedly have more money to devote to those payments after a bankruptcy discharge because the bankruptcy will take care of the other debts that have now been eliminated from your ledger. You won't have to worry about the other bill collectors and you can often arrange for reasonable payment plans on any non-discharged debts.
ALL THOSE UNPLEASANT CALLS AND LETTERS STOP
Once your bankruptcy is filed, your creditors and bill collectors are all notified and must immediately stop calling. Any wage garnishments stop any any lawsuits go away. And your mailbox is no longer something to fear.
YOU WILL HAVE AN OPPORTUNITY TO SAVE FOR THE FUTURE
If you've been working hard to pay your debts, you're going to suddenly have some extra cash flow. My advice? Save it. The best way to avoid going back into debt is to put away something each month - ideally in both a short-term savings account and in a retirement account of some kind (set up an IRA if you aren't eligible for an employee plan). A recent bankruptcy filing can clear the way for you to gain a better sense of financial freedom by creating a rainy-day fund.
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