Your concerns about bankruptcy will likely include the consequences and impact on your life after filing. While there are certainly negative effects, the clean slate that bankruptcy provides will allow you to rebuild your credit and start you on the road to financial recovery.
Rebuilding Your Credit
Chapter 7 bankruptcies stay on your credit report for ten years, while Chapter 13 stays for seven years. During this time, you cannot afford to sit on the sidelines and wait for your credit to improve. You must begin adopting responsible habits immediately.
Create a budget to learn where your money was going each month and where you may have run into trouble along the way. List all of your expenses, including housing, recurring bills like utilities and insurance, food, and entertainment, or make your own categories. Next, make a section for income, and plan the months ahead so your income stays ahead of your expenses. It will be important to allot money for savings and an emergency fund each month.
Need some help making your budget? Read this 5-Minute Guide to Budgeting
Use the tips you learned from the financial management and credit counseling courses you have already attended. They are mandatory because they include important information that anyone going through bankruptcy should pay attention to.
Keep your credit report current and accurate by requesting a copy, checking it thoroughly and often for any errors. Reports can sometimes show accounts as open and overdue, not reflecting recent changes. Make sure these are changed to say “included in bankruptcy.”
Be educated about the types of credit you are building up. There are loans, installment credit such as car payments made in installments or a payment plan, service credit such as monthly utility bills, and revolving credit such as credit cards issued by stores or banks. Each requires a different plan of action.
Get a secured credit card that allows you to set your own limit based on how much you deposit (usually around $200-$500). It may seem very low, but using your card slowly and regularly will help you build back up over time. Never charge more than you can pay at the end of the month. Look for a card with no application fee, a reasonable annual fee, conversion to an unsecured card after a certain time, and one that reports to the major credit bureaus. You will likely encounter very high interest rates on any cards and major purchases, but this will drop over time.
Installment credit such as student and auto loans can also be a huge help in rebuilding credit if you make your payments on time or even pay extra each month, as they show you are reliable and serious about changing your financial future.
Open a checking and/or savings account if you do not have one already. Many banks offer second-chance programs for people who have very low credit.
One of the most important things you can do is keep a regular source of income. Maintaining a job shows your situation is stable and proves your responsibility. If part of your debt included medical bills, take advantage of the insurance plan at your job or seek coverage from the state. You cannot be fired or discriminated against in the workplace based on a bankruptcy filing, although it is likely that a Chapter 13 will require you to take payments out of your monthly paycheck as part of your repayment plan.
Housing can also become a potential concern. If your house was used as an asset to liquidate and pay back creditors, low credit can affect your search for new housing. The following website or similar sites are available as a resource: Rent After Bankruptcy
Reopening Your Case
Once you have filed for bankruptcy, all action from creditors is stopped. However, you should still keep the trustee informed of any newly acquired property or valuable assets that may be used to pay creditors if it is enough to justify reopening the case. You do not need to re-file if you forget to list any non-exempt property in your bankruptcy papers, but you must tell the trustee.
Use the steps listed above to learn from your mistakes and start the road to financial recovery. If you have any questions or concerns, Contact Our Attorneys and put your mind at ease.