If you have already filed or are thinking about filing, you might wonder what life will look like after declaring medical bankruptcy. Taking this step will undoubtedly provide relief from the burden of medical bills, as well as a fresh start. However, your credit score will unavoidably take a hit, affecting many different aspects of your financial life.
It may seem like a hefty task to rebuild your credit and get to where you want to be financially. However, it is not impossible.
What Happens After Bankruptcy?
After filing at the bankruptcy court, you will be eligible for automatic stay, meaning creditors can no longer collect debts from you once you have declared bankruptcy. According to bankruptcy laws, the automatic stay begins the moment your case is filed. Your creditors will need to be informed, and then a bankruptcy trustee will help you liquidate any nonexempt assets.
Impact on Credit
A Chapter 7 case will remain on your credit record for up to ten years. However, your discharged debts can disappear from your report sooner, typically after about seven years. Most negative accounts no longer show up on your record seven years after final payments or activities.
A Chapter 13 bankruptcy will be on your report for up to seven years. Some debts may continue to show up on your report even after the bankruptcy disappears because of the three- to five-year repayment plan. After that bankruptcy repayment plan becomes inactive, then the seven-year period of it being reported on your record will begin.
If you have the means, a Chapter 13 filing is preferred because it can save your home from foreclosure.
Impact on Medical Care
If you filed a Chapter 7 bankruptcy case and your primary care physician was affected, they may refuse to treat you in the aftermath. Larger hospitals are less likely to refuse service to you, but smaller healthcare providers that were affected may see you as too big of a risk.
Finding a new doctor or healthcare provider may be difficult, but there are plenty of options that you can choose from, especially if you seek larger hospitals that cannot refuse you even if you cannot pay, according to the 1986 Emergency Medical Treatment and Active Labor Act. You may want to search for another health insurance plan as well if your rates go up as a result of your bankruptcy.
To help you through the bankruptcy process, a bankruptcy attorney can guide you to the next steps and help you come up with a plan to rebuild your credit.
What Steps Should You Take After Bankruptcy?
Taking these key steps after filing for bankruptcy can help you move forward financially.
Check Your Credit Reports Often
Credit reports are records that show your history of borrowing and repaying loans and credit card debt. They are continually updated as lenders, such as credit card companies, relay your usage and borrowing activity.
The three leading credit reporting agencies are TransUnion, Equifax, and Experian. You can request a free credit report each year through annualcreditreport.com and view it online or have a physical copy mailed to you. You can also order your free report from each private agency by calling 1-877-322-8228.
It is beneficial to take a careful look at your reports and print them out if you find any errors that you want to dispute. Experian offers free credit reports every 30 days, allowing you to check it more often.
All three credit bureaus do not share information with each other, so their reports may differ slightly. If you spot an error in one of your documents, it is critical to address it right away to avoid hurting your credit record long-term. Monitoring how bankruptcy affects your credit rate as you rebuild will help you stay on track as you move forward.
Checking Credit After Chapter 7 Bankruptcy
Around six months or fewer after filing your Chapter 7 case, the court will send you a letter informing you of your bankruptcy discharge. The credit bureaus will need another 90 to 120 days to update your bankruptcy information, and then you can request your free credit reports from all three agencies.
Look over the reports carefully for any errors. All of your credit accounts affected by your bankruptcy should be labeled “discharged in bankruptcy” and not “charged off.” It will also list an outstanding balance of zero dollars for those accounts. Any debts excluded from the bankruptcy filing, such as mortgages or car payments, should not be listed as discharged. Payments for those should still be reported.
Checking Credit After Chapter 13 Bankruptcy
Your repayment plan will last between three to five years, meaning your case will not be discharged until the end of that period. You can request your credit report 90 to 120 days after filing bankruptcy at the court to allow the reporting agencies to update your information.
Check these reports for accuracy as well. Creditors are not required to report any payments they receive during the Chapter 13 period, but some may. Therefore, the status of your accounts may not show up in your credit report, but do not be alarmed. It just means creditors are not reporting the payments they receive from you.
However, any payments to accounts that are not included in the bankruptcy settlement need to be on your credit report.
When your repayment period ends, you will receive a letter informing you that your case is discharged. After about 120 days, recheck your credit reports and confirm all loans under the repayment plan have been closed and list balances of zero.
Check Your Credit Score
While credit reports reflect your credit activity, credit scores calculate that activity using complex statistical analysis. These numerical scores do not show up on your credit report because they give different information about your credit, such as the likelihood you will default on, or fail to repay, a loan.
Several factors influence your credit scores, some of the most common including:
- Payment history
- Your available line of credit
- The total debt you have for all credit accounts
- The type of credit accounts you use
- The age of your credit accounts
- Any recent applications for new credit
- Public records that include bankruptcies
There are many existing credit scoring systems, but the FICO Score is the most widely used. You can sign up for a service that allows you to check your credit scores for free. A Chapter 7 bankruptcy case will lower your credit score significantly even after your case has been discharged.
However, bankruptcy will have less of a negative effect on your credit score if you already had overdue bills or defaulted credit accounts. Knowing your credit score is a starting point for the process of recovering and rebuilding after medical bankruptcy.
How Can You Rebuild Your Credit After Bankruptcy?
The most important task to focus on after declaring medical bankruptcy is rebuilding your credit. Filing for bankruptcy can bring your score down by at least 150-200 points. Poor credit will make it extremely difficult for you to receive a credit card or loan for the next several years. However, there are a few ways that you can work on rebuilding your credit.
Pay Ongoing Debts on Time
While your medical debt can be discharged through bankruptcy, you may still have lingering loans or obligations, such as car loans, alimony, child support, or student loans. These non-dischargeable responsibilities will last through both a Chapter 7 and Chapter 13 bankruptcy. However, by paying these ongoing debts on time, you can use it as an opportunity to rebuild your credit.
Obtain a Secure Credit Card
When using a secured account, you deposit cash as collateral into a savings account and then borrow a percentage of that amount for a credit card. That way, the lender will have a backup in case you do not make your payments on time. You can use the card to make inexpensive purchases and then pay off the total balance to show that you are able to manage credit.
Your secured account use is reported to credit bureaus, and it will have a positive effect on your credit. However, you cannot use your deposit to make payments; you need to pay the bill with other funds. Making monthly payments on time is the simplest and most significant way to rebuild your credit.
The drawback of a secured credit card is that you may need to pay extra fees and a high annual percentage rate. These fees are usually charged to the account directly, taking some of your deposited funds.
Use Other Types of Credit
Using various types of credit after bankruptcy may be difficult to acquire, but it will help demonstrate your ability to manage different accounts successfully. This can come in the form of new loans and other credit cards.
However, since you will be seen as a risky borrower, your interest rates can be as high as 18% or more, compared to the 5% interest rate for others with decent credit scores. But if you can stick to paying these loans off on time, you can use them to build credit.
No matter what, rebuilding your credit after medical bankruptcy just takes time. The impact of your bankruptcy will lessen over time, and in the meantime, you can fill up your report with positive information. If your insurance has an overwhelmingly high deductible, consider finding the right health insurance plan for you so you are not paying huge fees that will send you into debt again in case of an accident or other health issues.