By Heather Culp
I have helped hundreds of people obtain bankruptcy discharges in my 20 years as an attorney. Here are the answers to the ten most commonly asked questions during my initial bankruptcy consultations:
- Does my spouse have to file for bankruptcy, too? NO. Individuals can file for bankruptcy, and married couples can file for bankruptcy (even if separated), but the law doesn’t automatically require the other spouse to file where only one spouse needs bankruptcy relief.
- Will my bankruptcy hurt my spouse’s credit? NO. Your non-filing spouse’s social security number does not appear on the bankruptcy filing, and your bankruptcy will not affect your spouse’s credit or credit score as long as he or she continues to honor any joint credit terms. Note: Moving forward, joint credit will be more expensive, given your own credit history.
- Will I ever qualify for credit after a bankruptcy? PROBABLY. Credit card companies, in particular, love to lend to individuals who have received a bankruptcy discharge, because you have discharged (wiped out) most if not all of your debt, freeing up income to make payments on new debt. Your interest rate will be higher and your credit limit lower, but getting and paying for new debt on time is the quickest way to an improved credit score. Car lenders are used to seeing “bankruptcy” on credit reports and generally extend car loans after discharge, as long as you have the income to make the payments.
- Will I ever qualify for a mortgage after bankruptcy? PROBABLY. It is more difficult to qualify for a mortgage after the completion of a foreclosure, because the foreclosure causes an actual loss to mortgage lenders. Standards and regulations can change quickly, but generally, underwriters will consider you for a mortgage once four years passes from the completion of a foreclosure. A bankruptcy itself isn’t as big of a challenge to mortgage qualification.
- Should I get my [house/car/savings] out of my name? NO, not without first talking to a qualified, experienced bankruptcy attorney. Don’t panic and transfer property; that bell can be hard to unring.
- Can I settle my credit card debt rather than file for bankruptcy? MAYBE. Know that credit card lenders generally want one lump sum payment to settle a debt, or no more than four equal monthly installments. Most people that I see cannot generate the 40%-60% settlement amount that is required to pay off credit card debt. You should also know that you will receive an IRS Form 1099 for the amount of the debt that is written off after a settlement, and that this may give rise to tax debt. A tax bill following credit card settlements can be a nasty surprise.
- What does a charge off mean? It’s simply a reflection that the creditor believes the debt is unlikely to be collected. It doesn’t mean that you no longer owe the debt.
- Will my employer be notified of my bankruptcy filing? Only if you owe your employer money. All creditors must be listed in a bankruptcy filing, under penalty of perjury.
- How much will a bankruptcy hurt my credit score? It depends on a number of factors, but generally, anywhere from 130-200 points. The better your credit score, the more your score will drop following a bankruptcy. It’s relatively easy to rebuild your credit score following a bankruptcy, as long as you have income to obtain credit; see question 3 above.
- Should I file for bankruptcy? The best way to get an answer to that question is to call a bankruptcy attorney and ask about an initial consultation.
For more than 10 years, Heather Culp has been helping individuals navigate through the ever-changing tides of bankruptcy. She can be contacted at 704-377-4300 or hculp@www.essexrichards.com. To learn more about Heather, visit her bio here.