There are many reasons people end up filing for bankruptcy, but they all amount to the same thing: escalating debt has become too much to deal with. By filing for bankruptcy, people get the breathing room they need to get their financial lives back in order, and they stand a very real chance of bouncing back from earlier missteps. Unfortunately, many filers have found that this isn’t what happened when they came out the other end of their bankruptcy.
Bankruptcy and Credit Scores
Obviously, bankruptcies are going to have an effect on your credit score. However, for the most part, your score was probably already fairly low when you filed bankruptcy because of a high liability to asset ratio. Some people have great credit scores when they end up filing though, so theirs take much more noticeable hits.
Either way, bankruptcies also show on your credit report for seven years, in the case of chapter 13s, and 10 years in the case of chapter 7s. Fortunately, that gives you plenty of time to rebuild your score considerably.
Debts That Don’t Die
Like we mentioned above, though, some unfortunate individuals have discovered that their credit scores are getting hit much, much harder because of their bankruptcy filing. That’s because it’s acting as though the debts they discharged never went away.
The reason a bankruptcy works is because it focuses on helping filers get rid of their debt. Secured creditors get repaid through court-approved plans or, in the case of a chapter 7, by selling any non-exempt property the debtor may own and using those proceeds. Whatever unsecured debts the filer has are generally discharged—meaning they’re simply wiped clean and the lenders are out of luck.
While the courts are in charge of declaring those debts dead, it’s the banks that are responsible for removing those debts from credit reports. This gives the filer little choice but to keep making payments on debts that, legally, no longer exist. If they don’t, their credit score will continue to plummet and they may even be targeted for collection tactics.
One could look at this scenario and think that it might simply be a tragic byproduct of bureaucracy. After all, we’re talking about some of the largest banks in the country—and thus, the world—certainly it’s possible that clerical errors may be letting a few discharged debts slip through the cracks where they’re able to do this kind of damage.
However, many suspect that something much more sinister is at play. The banks could be moving to collect on these debts knowing full well they have no legal recourse. Former debtors who need mortgages, jobs, or to otherwise pass background checks may fork over thousands of dollars simply to stay out of trouble. Others don’t know any better.
For their part, some banks have pled that the situation isn’t their fault, but that the blame belongs on the buyers whom they often sell these debts to. Even if they wipe the debts clean from a report, the reasoning goes, these buyers may still move to collect, either because they’re not doing their due diligence or they don’t care.
No matter what scenario represents the truth, the fact of the matter is that once a court has discharged your debt, that’s the end of that: you are never again responsible for paying it back. If you have questions about this matter or if collectors are hassling you despite a discharge call (703) 549-5000 immediately or fill out our confidential contact form for a free consultation from Tyler, Bartl & Ramsdell, P.L.C.. Do not let these people hold your credit hostage another second.