After you are issued a discharge by a United States Bankruptcy Judge in a Chapter 7 case, you are no longer legally responsible for paying back any of the debts listed on your bankruptcy petition.  This legal responsibility may vary depending on whether you owe certain non-dischargeable debts, such as student loans, some government taxes, secured debts, or other priority or non-dischargeable claims.  In most cases, you will no longer be responsible for paying back your credit cards, personal lines of credit or medical bills.   Once your discharge is issued, the United States Bankruptcy Court has provided you with the opportunity for a “fresh start,” or the ability to rebuild your credit and finances.  This bankruptcy discharge opportunity is only available once every eight years, and you must make the most of your fresh start.

This article provides those who are preparing to file a Chapter 7 bankruptcy, or those who have received a discharge in a Chapter 7 case, with recommendations of what you may expect post-discharge.

Credit report – Make sure that you order a copy of your credit report approximately six months after you receive your Chapter 7 bankruptcy discharge.  You should order a credit report from all three consumer reporting agencies.  In Massachusetts, you are entitled to one free credit report per year, although you are not entitled to a free credit score.  Once you receive a comprehensive credit report, you should make sure that the debts listed on your bankruptcy schedules (except for you secured claims on Schedule D) do not show open balances on your credit report. Once you receive your bankruptcy discharge, your old creditors should not be reporting discharged debts to the major consumer reporting agencies as a delinquent balance.  If discharged debts are being reported (other than your secured debts that survive the bankruptcy discharge), you should consult with your bankruptcy attorney who may take action in the Bankruptcy Court against the offending creditor.

Keep in mind that debt that you acquire after the filing of your bankruptcy petition, or post-petition debts, will be recorded on your credit report. Also, you can expect your credit report to show “Chapter 7 Bankruptcy” or “Chapter 13 Bankruptcy” for a period of up to 10 years.  And if you had delinquencies reported before you filed bankruptcy, those may still be present, although the debt itself should be reporting as zero, or “discharged in bankruptcy.” Some consumer reporting agencies may not report a bankruptcy filing after 7 years, however, the longest they may legally report a bankruptcy filing is 10 years.

Credit Building – In all likelihood, after you receive a Chapter 7 discharge in a bankruptcy case, you will receive credit cards offers within 1 – 2 months.  Many of our clients have reported that they have quickly received offers of credit. It is recommended that you take advantage of these offers; however, you must act responsibly and be disciplined in your future use of credit.   These lines of credit should be used to rebuild a favorable credit history, rather than used for running a balance or purchases of non-emergency items or services.  Making a small charge on the credit card, and paying the balance off within 2 months, while always making on-time payments, is recommended for establishing a new and favorable credit history. If you make late payments, or no payments, or begin to run up high balances, you run the risk of upsetting the fresh start opportunity that was provided to you by the Bankruptcy Court.

Post-Discharge Collection – Make sure that you have a copy of your bankruptcy petition and schedules, and a copy of your Chapter 7 bankruptcy discharge.  In all likelihood, the Bankruptcy Court and your bankruptcy attorney mailed you a copy of the discharge that was signed by the United States Bankruptcy Court Judge.  If a creditor that you listed on your petition continues to attempt to collect debts that were listed or included in your bankruptcy petition, you should mail or fax that company or individual a copy of your discharge, and bankruptcy petition/schedules.  If that company or individual persists in the collection of debts discharged in a Chapter 7 bankruptcy, you should notify your bankruptcy attorney immediately.  Your Massachusetts bankruptcy attorney has the ability to re-open your bankruptcy case and file a complaint for money damages and attorney’s fees against creditors who collect debts that are discharged in bankruptcy.

Car loans – Many of our bankruptcy clients have reported to our bankruptcy attorneys that they have received automobile loans immediately after receiving  their bankruptcy discharge. You should expect that such loans will be offered at higher rates of interest, and the loan opportunities may vary based on car dealership and finance company. You may also be required to have a co-signor with favorable credit and/or make a larger down payment.

Mortgage Loans – Due to the instability and stricter lending standards in the consumer mortgage lending market, it is difficult for consumers who have not filed bankruptcy or received a bankruptcy discharge to obtaining home loan financing.  As this uncertainty and market instability is certain to end, it is highly likely that you will not be able to obtain a home loan for at least 3 to 5 years after discharge. Currently, Fannie Mae and Freddie Mac have tightened their lending standards and will not issue loans to individuals who have received bankruptcy discharge within the past 3 years.  In order to obtain home loan financing, it is likely that you will need a co-signer with strong credit and a 15-20% down payment.  If you intend on purchasing your first home or another home after receiving a Chapter 7 discharge, you should concentrate on rebuilding a favorable credit history and saving for a down payment.  If you have further questions about the impact of bankruptcy on your ability to obtain a mortgage, you should consult with a licensed Massachusetts mortgage broker or your Massachusetts bankruptcy attorney.