Which debts do I still owe after Bankruptcy?
Near the end of your bankruptcy case, your debts are discharged. This means that you no longer bear the legal obligation to repay those debts.
However, certain debts are excepted, or excluded, from discharge. The following list contains debts among those generally not discharged in bankruptcy:
1. Domestic support obligations. This includes alimony, maintenance or support for a spouse or children.
2. Student loans. Most student loans are non-dischargeable. However, you can ask the Bankruptcy Court for a partial or full discharge of this type of debt. The Court will only grant a discharge is you can prove that repaying the debt is an "undue hardship."
3. Most taxes. The majority of taxes cannot be discharged. There are exceptions, but the process to determining "dischargeability" is complicated. Discuss this in more detail with your attorney.
4. Debt incurred through fraud or false pretenses. In bankruptcy, this generally means that you borrowed the money with no intention of repaying the debt. Fraud issues arise most often when credit card companies believe that you borrowed money from them close to the time you filed your bankruptcy case. Very often, these cases are filed as "nuisance suits." That is, the credit card company knows that it would have a difficult time proving that you committed fraud, but they also realize that it may be economically worth it to you to settle the case to avoid the cost and stress of litigation. In most cases, it is not a good idea to reaffirm an unsecured debt when you did nothing wrong.
5. Criminal fines, penalties and restitution.
6. Claims arising out of auto accident cause while driving under the influence of drugs or alcohol.
How long will the bankruptcy stay on my credit report?
The bankruptcy remains on your credit report for 10 years. This ten year period is counted from the day you file your bankruptcy case.
This does not mean, however, that you will not be able to get credit for 10 years. Many of our clients report to us that they receive credit card offers in the mail even before the Court has issued the discharge order canceling their old debt. In addition, if you maintain good credit after your bankruptcy case, and have a solid, consistent income, you may qualify for a home loan after just two years. The real question with credit after bankruptcy is how much it costs. Review the interest rate and all terms of credit offers carefully, and choose wisely. Because there are so many lenders competing for your dollar, lending is a buyer's market. Shop wisely and don't take the first offer that comes along. Make the lenders compete for your business.
Do I still owe secured debts?
That depends. The term "secured debt" refers to a loan transaction in which you give the lender an interest in your house, car or other personal property that acts as collateral that "secures" the loan. In other words, if you default on a secured loan, the lender has the right to repossess the collateral, sell it, and apply the proceeds against the amount you owe. If the proceeds are not enough to repay the entire debt, then you are still contractually obligated to pay the difference. That difference is often referred to as a "deficiency."
Bankruptcy discharges, or cancels, your obligation to repay secured debts, just like unsecured debts. This means that the creditor cannot sue you and collect the loan amount due after the bankruptcy case is over.
However, the secured creditor's lien against your property is not cancelled by the bankruptcy. That is, the lender can still repossess the property, sell it, and keep the proceeds.
If you want to keep property that secures a loan, the first thing to do is remain current in your scheduled payments to the lender. Second, continue to make your loan payments after the bankruptcy case is filed. Very often, a secured lender will send your attorney a letter with directions and an alternate payment address where you should send post-petition payments. And third, it may be necessary for you to reaffirm the loan.
What is reaffirmation?
Reaffirmation is the process by which you tell a secured lender that you will repay the debt, despite the bankruptcy. A reaffirmation agreement, which is signed by you, your attorney and the lender, legally obligates you to continue payments during and after your bankruptcy case.
Reaffirmation agreements are not required by the Bankruptcy Code or any other law.
If you enter into a reaffirmation agreement, you can change your mind and rescind the agreement during your bankruptcy case within 60 days after it is filed with the Court, or before discharge, whichever event occurs sooner.
Should I reaffirm?
This is a question that only you can answer. But, the first thing you should ask yourself is "Can I afford the monthly payment?" You may also want to consider whether the property that you are seeking to keep is necessary. That is, can you do without it. For instance, a number of my clients seek to reaffirm debts on personal computers. Very often, the cost of a newer model computer, that is faster and better is less than the amount to be reaffirmed. Consider the reaffirmation carefully and speak to your attorney.
Finally, it is almost never a good idea to reaffirm an unsecured debt like a credit card.
