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The two most common types of consumer bankruptcies are Chapter 13, often referred to as a debt restructuring, and a Chapter 7, often referred to as a “liquidation” or “straight bankruptcy”.
There are many factors that must be considered when determining which type of bankruptcy is appropriate for any one client, including household income, expenses, assets, and long-term credit implications, among others. Your attorney’s job is to evaluate each circumstance unique to your case to best advise you on your path forward.
No, creditors cannot contact you for the duration of your bankruptcy case provided that you do everything that the bankruptcy court requires of you. Upon filing, you are protected from your creditors by the Automatic Stay, which prevents contact, foreclosures, and repossessions for the duration of your case.
In a Chapter 13 bankruptcy, you are required to turn over any state and federal tax refunds you receive for the duration of your case. Under certain circumstances, however, you can keep all or part of your tax refund provided that you need it for expenses approved by the bankruptcy court.
In a Chapter 7 bankruptcy, you may be required to turn over your tax refund to the Chapter 7 Trustee, who will use those funds to repay the creditors in your case. As such, many people choose to file a bankruptcy case after they have received their tax refund.
If your circumstances change after you file for bankruptcy, you should let your attorney know right away, as that may impact your case moving forward. Often times, converting your case from a Chapter 13 to a Chapter 7, or vice versa, may be appropriate.
One of the biggest myths surrounding bankruptcy is that filing will prevent you from ever being approved for a loan or a line of credit in the future. Most often, bankruptcy allows you to get your personal finances in order so that you can begin repairing your credit immediately, which will make it more likely that you can borrow money in the future.
Depending upon when you filed your previous case, you will be able to file a new case now. There are limitations set by the United States Bankruptcy Code that prevent an individual from filing bankruptcy cases too frequently. Be sure to discuss any previous case filings with your attorney.
Upon completing a bankruptcy case, I advise my clients to rebuild their credit by starting small and working their way up to bigger credit opportunities. For example, getting a credit card or gas card with a small credit limit and paying it on time every month will help you reestablish your credit right out of bankruptcy. Although you will likely find someone to finance you a vehicle right out of a bankruptcy case, the interest rate on these loans will often lead to large, unattractive payments. Thus, I find it best to start small and establish your payment history before moving on to bigger purchases.