You've filed bankruptcy and eradicated the debt that's been hanging over you for months or years. Now it's time to start planning for the future. While bankruptcy does offer the chance for a fresh start, it also causes an immediate hit to your credit score. With time and careful management of your resources, you can help your credit bounce back.

1. Secured Credit Cards

Some people have difficulty finding lending opportunities after bankruptcy. Creditors may be unwilling to take a chance on someone with a recent bankruptcy on their record. A secured credit card could be the solution. When you get approved for a secured credit card, you make a cash deposit to the lender. The deposit is typically the same amount as your credit limit. You get your deposit returned after making on-time payments for a set amount of time. Secured cards often have high-interest rates, so use them as a credit-building tool and keep a low balance.

Can Bankruptcy Resolve Tax Debt Matters?

No one likes thinking about their debt, but there's something about tax debt that makes it even more threatening and overwhelming than other obligations you may have. Mail from the IRS or North Carolina Department of Revenue can cause a knot in your stomach and lead to serious financial consequences down the road. If some or all of your debt comes from back taxes, find out how bankruptcy could help you get some breathing room.

Are Taxes Dischargeable in Bankruptcy?

In some cases, money owed to the IRS or North Carolina Department of Revenue can be discharged through bankruptcy, however, there are some factors that may affect your ability to discharge tax debt. There are also some types of tax debt that cannot be written off. This is why it's important to consult a bankruptcy attorney near you. If you find out immediately that your debt is nondischargeable, you can make an informed decision whether or not bankruptcy is worth it. Payroll taxes, fraud penalties, and non-income taxes cannot be discharged.

The Timing of Your Tax Returns

Timing is perhaps the most crucial factor in figuring out whether or not your tax debt can be discharged through bankruptcy. Assuming that most of your debt comes from income taxes, you must meet bankruptcy standards for discharge. If you committed fraud or tax evasion, that amount cannot be discharged. Similarly, you must have filed a tax return for each year of debt you wish to discharge. If you did not file, the taxes owed for that year cannot typically be discharged in bankruptcy.

Many people worry about their ability to secure loans, find housing, or apply for jobs in certain industries if they have a bankruptcy affecting their credit score. Knowing what to expect can help you make an informed decision.

A Sudden Decrease in Your Credit Score

Don't be surprised or panicked if you notice a sudden drop in your credit score at one or multiple bureaus. Bankruptcy is a derogatory mark on your credit report, and it can significantly decrease your creditworthiness in the eyes of lenders. This is especially true if your accounts are current or only slightly delinquent, as your credit score may not have been seriously impacted by your growing amount of debt. While it is hard to accept a decrease in your credit score, don't worry. There are many ways you can strengthen your score over time.

When Bankruptcy Can Help Your Credit Score

In some cases, bankruptcy may only have a brief minimal negative effect on your credit score, followed by a rather speedy recovery. If you waited until bankruptcy was unavoidable, you may have many delinquent accounts, accounts in collections, and defaulted accounts. If that is the case, keep in mind that a credit score can only go so low - 300 in the case of a FICO score. But when your debt is discharged in bankruptcy, all of these negative marks are quickly removed from your credit report, and your debts are reported as being discharged. Therefore, even with the impact of a bankruptcy on your credit report, your credit score can improve rather quickly.

When you have more debt than you can handle, it can take over your whole life and rob you of your peace of mind. Chapter 7 bankruptcy is one way to discharge eligible debts, give yourself a fresh start, and work toward a more secure financial future. Unlike Chapter 13 bankruptcy, there is no 'payment plan' in Chapter 7. Instead, your debts are simply 'wiped out' upon receiving a discharge. The Chapter 7 bankruptcy process in North Carolina is relatively straightforward for individuals with modest income and assets, and we explain it in this blog.

Are You Eligible?

The court system uses a means test to determine whether or not an individual qualifies for Chapter 7 bankruptcy. The means test analyzes your income and compares it to the state median income. If your income is above the median, you may still file Chapter 7 if you are unable to pay at least $6,000 over the next five years to your creditors. If you can afford more than $6,000 but less than $10,000, you may qualify if you are unable to pay at least 25% of your unsecured debt. A bankruptcy attorney can help you sort this out.

If you are an individual or small business owner who is struggling to stay afloat financially, a Chapter 13 bankruptcy may be able to help you restructure your finances and pay off debt without losing assets. This blog will look at the benefits of a Chapter 13 filing.

Eligibility

Chapter 13 bankruptcy is available to individuals and sole proprietors who can include their business debts in a repayment plan. Unlike other options, there are debt limits under this chapter, which are (as of 2019) $394,725 for unsecured debt and $1,184,200 for secured debt. Chapter 13 isnot an option for partnerships, corporations, LLCs, and joint ventures, so you will need to consider a different chapter if your business is organized under one of those entities.