Understanding the Impacts of Bankruptcy

In this article, you can discover:

  • How your access to credit is affected after a bankruptcy filing.
  • The financial role of friends and family in bankruptcy proceedings.
  • The kinds of retirement accounts that are protected by bankruptcy law.

How Many Years Will A Bankruptcy Stay On My Credit Report?

This is a common question, in fact just about anyone that comes into our office asks, “How long will a bankruptcy impact my credit score?”

Typically, a bankruptcy filing will show on a credit report for 7 to 10 years. However, we advise the client that a bankruptcy filing on a credit report may not be detrimental to how they will be viewed by a creditor.

In other words, if a bankruptcy is on a credit report and no other detrimental entries to the bureaus since filing, and meet the requirements to borrow money from this particular creditor – they usually won’t deny credit.

In fact, a bankruptcy that shows on a credit report is much less detrimental to someone seeking credit, than a repossession or foreclosure. Things of this nature are much worse than a bankruptcy filing and make a creditor far less likely to loan money than they would if a report shows a bankruptcy.

Will I Be Able To Buy A New Car Or A Home After Having A Bankruptcy On My Credit Report?

It’s completely reasonable to plan on buying a new car or purchasing a home after bankruptcy. In fact, you can typically pursue these goals much sooner after filing for bankruptcy than you could if you didn’t file and continued to owe on your debt obligations.

The truth is that, in most cases, bankruptcy allows you to decrease your debt-to-income ratio – which helps you to afford an automobile or a home purchase in the long run.

Federal underwriting guidelines require an individual to be 2.5 years post-bankruptcy to be approved for a Federal Mortgage.  That is generally the rule that most mortgage lenders will follow barring extenuating circumstances.

Will I Lose My Retirement Funds If I File For Bankruptcy?

Retirement funds that are in a federally-approved account are almost protected in any bankruptcy filing. This includes:

  • Pension Funds
  • 401(k)s
  • 403(b)s
  • Texas Retirement System (TRS)
  • Municipal Retirement System (MRS)
  • Individual Retirement Accounts
  • And more…

What is not protected is money deposited in a bank account that is not a federally protected retirement fund.  In other words, if a person withdrew their pension and deposited it in a bank account, those funds would not be protected in bankruptcy.  Before making any decisions about withdrawing money from a retirement account, it is prudent to counsel with an attorney.

Are Tax Refunds Protected In A Bankruptcy?

Whether or not your tax refund will be protected in a bankruptcy filing will depend on whether you file for Chapter 7 or Chapter 13 bankruptcy protection. While many filers are able to protect their refunds, it’s usually done with the help of a skilled bankruptcy attorney by their side.

Can I Transfer Money/Property To Friends Or Family Prior To Filing For Bankruptcy?

Transferring money/property to friends and family before filing is often a destructive move. These transactions have to be disclosed during the bankruptcy process, and they could result in highly negative consequences.

I Owe My Family And Friends Money. Can I Pay Them Back Before Filing For Bankruptcy?

A debtor cannot pay back family or friends to the detriment of other creditors. By attempting to pay certain debts with before filing, it may run into an issue of “preference” if it is not accomplished under the counsel of an attorney.

In these circumstances, if it is found that there was a preference to friends and family, there are ways for the bankruptcy trustee to pull those funds back into the estate for the benefit of creditors.

For more information on the Impact Of Bankruptcy On Credit Reports, an initial consultation is your next step. Get the information and legal answers you are seeking by calling (888) 402-5557 today.

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