Filing for bankruptcy can be a difficult decision. Acknowledging that your debt has gotten out of control and that you need help to get your finances back on track is not always easy. However, bankruptcy can provide you with a truly fresh start. Eliminating your debts, including large credit card bills, medical bills, or other debts that have stacked up because of issues such as the loss of a job, can take away a huge burden and ensure that your family will be able to avoid serious financial problems in the years to come. Part of the fresh start following bankruptcy involves rebuilding your credit, which will help you qualify for loans or other benefits in the future. As you plan for your life after bankruptcy, there are steps you can take to improve your credit score.

Pay Your Bills On Time

One of the most important things you can do to rebuild your credit is to pay all of your bills before the monthly due date. In addition to making monthly payments on any loans you kept following your bankruptcy, such as a home mortgage or auto loan, you may want to set up reminders or automatic payments for other bills, such as utilities. Making prompt payments on a regular basis will show creditors that they can trust you and that you are responsible with money management—two qualities they look for when considering whether or not someone should receive loan approval. On the other hand, any late payments may cause your credit score to decrease further, affecting your ability to build your credit back up.

Get a Secured Credit Card

You may be hesitant to apply for a new credit card after filing for bankruptcy, since you will want to avoid racking up new debts that could cause future difficulties. However, credit cards can actually be beneficial in the long run if used responsibly. If you are unable to receive approval for a regular credit card because of the bankruptcy on your record, you may be able to receive a secured credit card. With this type of card, you must make an upfront deposit that serves as collateral for any purchases made with the card.

With the rising cost of living and high levels of consumer debt, bankruptcy is becoming a more popular option for Americans who are struggling to make ends meet. However, there are still many misunderstandings related to bankruptcy laws and procedures that can lead people to jump to conclusions and make uninformed decisions. In situations involving large debts, you will want to understand your rights and options, and with the help of an experienced bankruptcy attorney, you can take steps to avoid further problems and regain financial stability. Here are some common bankruptcy-related myths and the truth about how issues related to debt may be handled before, during, and after the bankruptcy process:

Myth 1: Bankruptcy Is a Sign of Failure

The truth is that receiving debt relief through bankruptcy is not an indication that you are irresponsible with your finances or that you have failed to properly account for your income, assets, and debts. Most people who pursue bankruptcy do so because of financial issues they have encountered through no fault of their own, such as unexpected medical bills or debts that occurred due to the loss of a job. Bankruptcy offers you the opportunity to get back on track financially. It provides relief from debts you cannot pay and gives you the chance to start fresh. With careful planning, it can be an effective tool in your overall financial strategy and provide much-needed relief in difficult times.

Myth 2: All of My Assets Will Be Taken Away if I File for Bankruptcy

You may be concerned that you will have to turn over money you have saved or other property you own when you file for bankruptcy. However, depending on the specifics of your case, including the type of bankruptcy protection you are seeking, you may be able to keep most or all of your assets. While a Chapter 7 bankruptcy is known as a "liquidation" bankruptcy in which some of a debtor's assets may be turned over and sold to repay debts to creditors, you can make use of exemptions to keep certain types of property. Many Chapter 7 cases are "no-asset" bankruptcies that will allow a person to exempt all of the assets they own. In a Chapter 13 bankruptcy, also known as a "reorganization" bankruptcy, you will usually be able to avoid the loss of any assets as long as you complete a three-to-five-year repayment plan.

Filing for bankruptcy is a big decision, but it can be necessary in order to get back on your feet financially, especially if you have experienced difficulties that have made it impossible to make ongoing payments toward large debts. However, if you are a homeowner, you will likely be looking for solutions that will allow you to avoid foreclosure and keep your home. In many cases, Chapter 13 bankruptcy is the best option, but it is important to understand how mortgage loans will be handled in these types of bankruptcy cases.

What Is a Chapter 13 Bankruptcy?  

A Chapter 13 bankruptcy is also known as “reorganization” because it allows you to reorganize your debts into manageable payments over three to five years. During this period, you will make payments to a court-appointed trustee, who will distribute the payments to different creditors. If all payments are made on time and according to the plan, the remaining unsecured debts may be discharged at the end of the repayment period. Through this method, you can eliminate debts like credit cards and medical bills. Unlike a Chapter 7 bankruptcy, Chapter 13 will not require you to turn over any property that you own, and this may allow you to protect the equity in your home.

During your bankruptcy repayment plan, you will also be required to make ongoing mortgage payments. The amount you pay each month toward your repayment plan will be based on your disposable income, or whatever is left over after paying your regular monthly expenses, including food, clothing, utilities, insurance, transportation costs, and auto loan and/or mortgage loan payments. This will ensure that you will be able to cover all of your family's needs while using the leftover income to pay off some of your debts, and once you have completed your repayment plan and eliminated various unsecured debts, you will be more likely to maintain financial stability in the future.

People with significant debts may qualify for multiple types of debt relief, and in many cases, bankruptcy is the best option. Those who plan to file for bankruptcy will often choose to file under Chapter 7, since this will allow most types of debts to be discharged/eliminated within just a few months. However, debtors will need to meet certain requirements to qualify for debt relief under Chapter 7. One of the most important criteria is the means test, which measures a person’s financial situation to determine whether they have the ability to repay some of their debts.

What Is the Means Test? 

The means test is used to determine if you have enough disposable income left over after paying essential expenses related to housing, food, transportation, etc. By looking at your income and expenses, the means test measures whether you have enough money in your monthly budget to repay at least some of what is owed to your creditors. If not, then you may be eligible for a fresh start through Chapter 7 bankruptcy. Otherwise, you may need to pursue a Chapter 13 bankruptcy or other debt relief options.

How Does the Means Test Work? 

The means test starts with calculating your current monthly income (CMI). To do this, the total income you earned during the six-month period before filing for bankruptcy will be added together, excluding Social Security payments and public benefits. That number is then divided by six to determine your CMI. If your CMI is less than the median income in your state, then you will automatically pass the means test. In North Carolina, the median annual income for bankruptcy cases filed after November 1, 2022 is $55,621 for a single person. The median income increases based on household size: $69,303 for a married couple or a household of two people, $80,895 for a household of three people, and higher amounts for households with more people.

Debts can be difficult to deal with in any situation, but in some cases, the failure to pay what is owed could result in the repossession of a vehicle or other property. While bankruptcy may be an option if you are struggling with debt, determining how a bankruptcy filing will affect a repossession is not always easy. Will filing for bankruptcy stop a repossession? Will it allow you to recover property that has already been repossessed? By understanding the procedures followed during bankruptcy, you can make sure you follow the correct steps to protect yourself and receive relief from your debts. 

Preventing Repossession Through the Automatic Stay

When you begin the bankruptcy process, an automatic stay will go into effect as soon as your bankruptcy petition is filed. The automatic stay is a court order that blocks creditors from taking any collection actions against you, including repossessing your property. By filing for bankruptcy as soon as you learn that a creditor plans to repossess a vehicle or other property, you can prevent the repossession and determine how to address your outstanding debts. As long as the automatic stay is in place, creditors will be unable to repossess your property. However, a creditor may ask for the automatic stay to be lifted if they believe that they may suffer losses due to the destruction of property, so it is important to move forward with the bankruptcy process and make sure you address your debts correctly with the help of an attorney.

Recovering Property Following a Repossession

If your vehicle has already been repossessed, you may be able to get it back after you file for bankruptcy. However, you will need to act quickly to do so, since once a creditor sells property that has been repossessed, it can no longer be recovered. After filing for bankruptcy, the equity you own in your vehicle will be part of the bankruptcy estate, and a creditor may be required to return it to you during the bankruptcy process as you determine how to address your debts, the assets you own, and other issues.