Will bankruptcy hurt my credit?

Will filing bankruptcy ruin your credit? Hello, my name is Jeff Kelly. I’m a bankruptcy attorney. I’ve been practicing for about 22 years now. And in today’s podcast, I’m going to answer that question. Well, I can just tell you right out of the gate, my goal as a bankruptcy attorney, when I have a client come in and meet with me, when it comes to credit, my goal is to take any expectations that they have about credit and just beat them into the ground. I don’t want people to come into bankruptcy with false ideas. And there’s nothing worse than unmet expectations. So, I tell people, “look, we are about to take a big giant wrecking ball and it’s going to go clunk, clunk, clunk, clunk, clunk! Boom, to your credit when you file.”

But the funny thing is, the people who I meet with, who seem to be most concerned about their credit are people who have already had their credit ruined by garnishments and judgments and I have a client – I’ve had potential clients out – I just can’t do it. I just can’t afford to wreck my credit and I’m looking at it at their credit report and I’m like, “you’ve got to be kidding me. Your score is 550, you have 10 judgments against you. You’re currently being garnished. They’re taking 25% of your income.” So I think what’s going on is a lot of people – it’s very common for people to make decisions that are just based on emotion. And when it comes to whether to file or not to file bankruptcy, emotion really has to go out the window and we’ve got to look at numbers and we’ve got to think logically here. So, if somebody is in a situation where they can avoid bankruptcy altogether and take care of their debts in a reasonable fashion, by all means do it.

But what if your house is at stake? What if they’re about to foreclose on you? No way should you delay filing. You’ve got to save your house. You can rebuild your credit back later. If your car’s about to get repossessed and you’re not going to be able to get back and forth to work, maybe you might even lose your job, file Chapter 13, save the car. There’s a lot — In Georgia, they can garnish up to 25% of your paycheck. I am shocked and stunned at how many people I see who will be garnished for years before they finally come in and meet with me. A lot of people think that some judgment’s just going to eventually disappear and just fall away and sometimes it does happen, but they can renew those judgments. It doesn’t cost much at all. And so, I’ve had clients come in and they’re like, “This debt is from 15 years ago, it can’t be legal.” Well, the reason it’s legal is because they got a judgment and they’ve been renewing it every single time it came up.

So, another common objection I get of why people just don’t want to file bankruptcy is because they’re worried they’re never going to be able to buy a new car. And it’s just not true. People buy cars all the time after they come out of Chapter 7 and Chapter 13. And the reason that someone can file a bankruptcy file a Chapter 7, 90 days later get a discharge and then go buy a new car, the reason people can do that is because their credit slate has been wiped clean. They’re starting over from scratch. The smart car companies know that you can only file a Chapter 7 once every eight years. So they’ve got eight years to potentially take it out of you. They’re smart. They know that. Some clients will come to me and say, “Look, Jeff, you’re telling me that this wrecks my credit? Well, how come my friend claims that they filed and they rebuild their credit so fast? What’s up with that?” Well, I think the best way to look at it is new start. I would never want to tell somebody, “Hey, we’re going to rebuild your credit by following Chapter 7.” I would rather say, “we’re going to get you a new start.” And for a lot of people, starting from zero is way better than having $50,000 of debt hanging over their head that’s never, ever, ever going to go away. If it doesn’t go away, you can’t reestablish credit. You can’t rebuild.

Can you buy a house after filing a Chapter 7? And I’ve seen many, many clients do it. In most cases it’s around two years. But the biggest thing to consider about buying a house, that most people don’t consider, it’s the down payment. You want to be able to put 10% down on your house. It helps with your interest rate. You’ve got equity built in right out of the gate, you’ll get a better interest rate overall. There’s just so many reasons. But Dave Ramsey who’s a financial expert, I’ve heard him say before, if you can’t afford to put 10% down on the house, there is a pretty good chance you can’t afford the house period. You don’t ever want to get into a zero down situation or – you see a lot of these signs on the side of the road where it’ll say, “Hey, just, you know, $5,000 down and we’ll get you into a $200,000 house.”

You’ve got to have cash to be able to fix air conditioners, roof leaks, you definitely have to have your emergency fund established. And if you’re skating into a house on bare zero, it potentially isn’t going to end well for you. Another objection I get a lot about, “Hey, I don’t want to file because I’m worried about my credit score. I’m worried about losing my credit cards because what am I going to do in case of an emergency?” And it’s stunning how many people rely on their credit card as their emergency fund. Your credit card is not your emergency fund. When things go south, when you lose your job, if creditor starts suing you, the very first thing that a credit card company is going to do is cut you off. And they can do that, even if you’ve got a zero balance. They can cut your credit off and they will, as soon as they smell that things have headed south for you.

The emergency fund, that is top priority. Personally, it’s just my personal opinion, but I think everybody needs about $5,000 cash in a emergency account, so that God forbid when you need new tires, when your engine falls out, you’ve got the emergency fund established. Emergency funds should be used for true emergencies only. Somebody’s birthday gift, that’s not an emergency. They’ll live if they don’t get a birthday gift. Same with Christmas, same with anniversary, whatever it is. The emergency fund has to be true, true, true, super, super important emergencies like getting in your car so you can maintain your job, keeping a roof over your head, doing emergency repairs on the house. Check out Dave Ramsey’s website. He’s got a lot of stuff about the emergency fund. That is where you need to go head toward and if you’ve got a big, huge monolithic pile of debt hanging over you, it’s impossible to establish emergency fund, especially if you’re being garnished and they’re taking 25% of your check or worse if they’ve got judgments and they’re completely cleaning out your checking account.

Chapter 13 and chapter seven is a great way to wipe out debt, get back on your feet and get a new start. It is a free consultation with my office. Give us a call at (770) 637-1756. Doesn’t cost you anything to sit down with us. We can go through your income, we can go through your budget and let’s see where you are and explore what your legal rights are. What are your options? It’s good to know and if you don’t want to come into the office, that’s fine. We are doing phone appointments and we are also doing appointments via Zoom. Right now, with this corona virus stuff going on, the court is allowing us to review your bankruptcy petition with you with programs like DocuSign and Zoom. We can go through it one page at a time virtually. So you can do your initial consultation with us from your home.

You can review your paperwork for the bankruptcy case, your petition from home. And even the court hearings now, you can do that from your home as well because currently they are doing them over the telephone. I’m not sure how much longer that’s going to last. I have a feeling that’s probably going to end once things get a lot safer out there. Most creditor attorneys are not fired up about people being able to not show up in court and have their hearing done remotely. But if you’ve got questions, any questions at all, again, call us (770) 637-1756. I’ve got a – my main website is www.kellycanhelp.com. I’ve written a book about Chapter 13 and Chapter 7, I’d love for you to get a free copy of it. You can scroll down to the bottom of the page, type in your email address, and boom, we will get it to your inbox. Thank you very much for tuning in, and if you’ve got any questions that you’d like for me to answer on a podcast, please send them to [email protected]. Thank you. Have a great day.