CHAPTER #13 Does Chapter 7 or 13 Bankruptcy “Ruin My Credit?”

Yes and no. If you need to file bankruptcy, you don't have good credit, you have good debt! Bankruptcy does not generally ruin your credit more than it is already. Many people say to me, "I'm current on all my cards. I have good credit." Then I find out that they have been getting cash advances on one card and using that money to pay the other charge cards. That is called "Robbing Peter to pay Paul." That is not good credit. That is borrowing money when you don't have the ability to repay it. If you are doing that, you don't have good credit.

Credit is the ability to borrow money. Lenders look at several things about you if you want to borrow money. First, they look at your ability to repay it. If you have a lot of bills to pay now, you probably can't afford to borrow more, because you won't be able to repay it.

Second, they look at your past history of repayment. If you have been reported slow-pay, or have lawsuits, garnishments or repossessions, you already have ruined your credit history. Getting rid of your bills in a bankruptcy may actually improve your situation. You will have no bills to pay, or maybe just one or two. You will then be able to try to save a little money. Also, you can't file another bankruptcy until six years have passed. Many lenders will allow you to re-establish credit, because now you have a better ability to repay.

The third main factor that a lender looks at is the security or collateral given for the loan. You may need more money down than in the past.

If you are contemplating bankruptcy, you have probably received charge cards in the mail, and bought things with no money down. After a bankruptcy, that easy credit will be harder to obtain. You can get a charge card by giving a $400 or more savings account with the issuing bank, so that if you do not pay the charge card, they can deduct from your bank account.

Many clients are able to buy a home within a few years after filing a bankruptcy or even during a bankruptcy. How do I know? Every week an old client calls me and asks for proof that their bankruptcy got rid of their old bills, so they can give it to their mortgage company. Mortgage companies want to know that people buying houses don't have creditors chasing them, because those creditors can put liens on the house. Also, if you have a lot of bills to pay, you probably can't afford house payments. Filing bankruptcy may be the first step to buying a house.

Problem: Joan & Marty have a house worth $105,00, with a $90,000 mortgage, a paid-off 2005 Malibu worth $5000, and the normal household furnishings, all 3 or 4 years old. They have $22,000 worth of charge cards, and can't keep up the payments because their real estate taxes and insurance just went up. Their monthly expenses, with the mortgage, equal their income, before they start paying the charge cards.

The Geraci Law Chapter 7 or 13 Solution: Under Illinois law, for a married couple, $15,000 equity in your house is exempt from creditors, as well as $4000 worth of other property, including cash or furnishings, and a $2400 interest in a car. Joan & Marty can discharge all their bills, keep their car and furnishings, and keep their house, just paying mortgage and taxes. Realize that most information about bankruptcy that comes from sources other than bankruptcy attorneys, is FALSE or INCOMPLETE. There are a lot of scam artists, "financial advisors", people paid by your creditors, and people who want you to stay in debt that give out false or incomplete information. Only a licensed attorney can legally advise you about how your individual situation is affected by bankruptcy law.

Don't fall for internet scams, referral websites posing as attorneys, phony "bankruptcy websites" that want to take your information and sell it to lonesome unknown attorneys, and other internet nonsense.