When considering bankruptcy, many Florida residents are
understandably concerned about how it will impact their credit score and what
will happen to their assets, such as their homes and vehicles. These are
crucial questions, and understanding the answers can help you make informed
decisions about your financial future. In this post, we’ll address these common
concerns, providing clarity on what to expect when you file for bankruptcy.
How
Will Bankruptcy Affect My Credit Score?
One of
the primary concerns for individuals considering bankruptcy is the impact it
will have on their credit score. While it is true that bankruptcy can
significantly lower your credit score, the reality is that if you are already
struggling with debt, your credit score may already be low due to missed
payments, high credit utilization, and other financial issues.
Duration
of Impact
The
specific impact on your credit score depends on several factors, including your
credit history and the type of bankruptcy you file. For example:
Chapter 7 Bankruptcy: This type of bankruptcy
typically remains on your credit report for ten years from the date of filing.
However, the impact on your credit score lessens over time, especially if you
take steps to rebuild your credit.
Examples would include making on time payments on your vehicle loan and
establishing a very small credit account after your discharge and paying on
this account on time each month.
Chapter 13 Bankruptcy: Chapter 13 bankruptcy stays
on your credit report for seven years. Since this involves a repayment plan, it
may be viewed more favorably by future lenders, potentially allowing you to
rebuild your credit more quickly.
It’s
important to note that while bankruptcy will lower your credit score initially,
it also gives you the opportunity to start fresh. By discharging your debts,
you can begin to rebuild your credit sooner than if you continued struggling
with unmanageable debt.
What
Happens to My Assets During Bankruptcy?
Another
significant concern for those considering bankruptcy is the fate of their
assets, particularly homes and vehicles. Here’s what you need to know:
Homes
and Vehicles
Chapter 7 Bankruptcy: Under Chapter 7, also known
as liquidation bankruptcy, some of your assets may be sold to pay off
creditors. However, Florida’s bankruptcy exemptions are quite generous,
allowing you to protect essential assets such as your home and equity in your car.
The homestead exemption, for example, can protect your primary residence, and
Florida’s homestead is unlimited, provided you meet certain criteria.
Similarly, your car has a generous exemption of $5,000.00. Meaning that you can protect up to $5,000.00
in equity in a car. There are other
additional exemptions such as the Florida Wildcard exemption that provides an additional
amount of $4,000.00 in asset protection that may be used in conjunction with
the vehicle exemption that may be used.
Chapter 13 Bankruptcy: Chapter 13 involves a
repayment plan, allowing you to keep your assets while paying off your debts
over a period of three to five years. As long as you keep up with your payment
plan, you can retain your home and car. There
are special concerns for luxury items and investment properties so a consultation
with an experienced bankruptcy attorney is a very wise move.
Retirement Savings
Many
people worry about their retirement savings being at risk during bankruptcy.
The good news is that most retirement accounts, such as 401(k)s, IRAs, and
pensions, are protected under federal and state law. This means that your
hard-earned retirement savings are typically safe, regardless of whether you
file for Chapter 7 or Chapter 13 bankruptcy.
Can I Keep My Car or House?
Whether
you can keep your car or house during bankruptcy depends largely on the type of
bankruptcy you file and the equity in these assets:
Car: If you have a car loan, bankruptcy may allow
you to keep your vehicle, but you’ll need to continue making payments. In
Chapter 7, if your car is fully paid off and its value falls within the
exemption limits, you can keep it. Under Chapter 13, you may be able to include
your car loan in the repayment plan, making it easier to keep up with payments.
House: Florida’s homestead exemption is one of the
most generous in the nation, often allowing you to keep your home even in
Chapter 7 bankruptcy. In Chapter 13, as long as you can continue making
mortgage payments under the repayment plan, you can keep your home.
Final
Thoughts: Navigating Bankruptcy with Confidence
Bankruptcy
is a powerful tool that can provide a fresh start for those overwhelmed by
debt. While it does impact your credit score, the long-term benefits of
discharging unmanageable debt often outweigh the initial drop in credit.
Additionally, with Florida’s generous exemptions, you can often retain your
most important assets, such as your home, car, and retirement savings.
If
you’re considering bankruptcy, it’s crucial to consult with a knowledgeable
attorney who can guide you through the process and help you understand your
options. At The Tancredo Law Firm, P.A., we focus our practice in consumer
bankruptcy and are committed to helping Floria residents achieve financial
freedom. Contact us today for a consultation and take the first step toward
reclaiming your financial future.
The Tancredo Law Firm, P.A.
1306 Thonotosassa Road,
Plant City, Florida 33563
(813) 659-3612
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