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Questions & Answers > Credit Repair > What Happens to a Person Post-Bankruptcy Discharge?

What Happens to a Person Post-Bankruptcy Discharge?

By Derek Brown
Published: Tuesday, May 10th, 2011

Bankruptcy is the last thing a borrower must resort to. While it may wipe out the liabilities of the person, meaning all financial liabilities are now discharged, it will also demolish the credit reputation of the person. In the end, the person will have, literally, a new start.

There are 2 types of bankruptcies.  Chapter 7 and chapter 13 of the bankruptcy code differ in the way it addresses the bankruptcy filed by the person. Chapter 7 frees individuals of their financial liabilities, except of course, child support and support for an ex-spouse (also known as alimony). Bankruptcy laws may differ from state to state. Individuals may get to keep their homes or cars, depending on what their state law orders. Chapter 13 on the other hand will negotiate a repayment plan wherein you will be ordered to pay your financial liabilities over a period of time, according to your capability to pay each month.

The option you choose does not make a huge difference since both are still bankruptcies—only the terms differ. People undergoing bankruptcies must wait for 10 years before the bankruptcy information is removed from their files. Before, people waiting for the 10-year period to elapse expect that certain lenders will avoid offering loans and mortgages to them. That was before.

Post-bankruptcy conditions today are better. Because of the rise of the number of people who file for bankruptcy, lenders now venture into the more specialized field of bankruptcy lending. And these lenders are not limited to subprime lenders or loan sharks. Some are reputable companies who appear at the doors of bankruptcy filers to help them in their current situation. These companies then issue the individuals their much needed credit lines to re-establish new credit files. Needless to say, the new files must be in the “excellent” range in terms of timely payment.

But before you start thinking about filing for bankruptcy just because you want to elude your financial liabilities, think again. Bankruptcy is not that easy to handle. Lenders will investigate how you got to the point of filing for bankruptcy and if the situation really got out of hand for you to consider taking the last resort.

Remember not to file for bankruptcy if you’re simple lagging behind monthly payments and want to get a brand new slate through some sneaky way. If you do get into this kind of situation, you will soon find yourself dealing with subprime lenders and ultra high interest rates. You will have the same problem with liabilities—only with bankruptcy information added to your files.

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