13
May

The Road Back From Bankruptcy

The decision to declare bankruptcy is never an easy one for both financial and often emotional reasons. If you are one of the million or more people who file for Chapter 7 or Chapter 13 bankruptcy protection each year there are some important things you need to know in order to move on with your financial life.

It’s Not the End of the World

Personal bankruptcy happens and with proper planning it does not have to be an end, but rather a new beginning. A chance to start over with a clean slate and to get your personal finances right the second time around. The speed of your financial recovery depends far more on what you do post bankruptcy than what you did to get into trouble in the first place.

The effect of bankruptcy has on your credit score all depends on where it was before your declaration. If you are like most people who are filing Chapter 7 or 13, chances are your credit score has been sliding downhill for a while as you missed payments struggling to stay afloat and that means the actual bankruptcy won’t make matters much worse.  If, on the other hand, you held things together right up until the end, and had a reasonably good credit score, you will probably see your score take a big tumble.

The Rise after the Fall

Rebuilding your credit score after a bankruptcy is similar to erecting a physical structure in that it should begin with a survey of the building site. In the case of your finances, the building site is your credit report. Get copies of all three after your bankruptcy is finalized so you can develop a clear understanding of where you are starting.

Chances are your credit reports are going to be ugly and unpleasant to look at which is all the more reason you have to scour them thoroughly and completely to make sure they are accurate and that the only negatives on there are genuine and accurate. Check for;

    • Accounts that aren’t yours
    • Closed accounts that are listed as open
    • Payments applied to the wrong account

If you find errors, follow the dispute procedures of the credit bureau and be sure to keep a record of all communications and copies of paperwork.

Stay on Track

Depending on your settlement, you may be left with a few bills or many, but no matter the number, it is vital to make sure that your payments are always on time. Think of your bankruptcy as a starting line, and what came before has no bearing on where you are going. Consider setting up auto-payments with your bank to ensure that you don’t forget to send anything in.

Don’t Do Anything Rash

Walking out of bankruptcy court, or an attorney’s office, after signing your discharge papers; you may feel the compulsion to immediately take scissors to any credit cards you have left and promise before heaven and earth to never get another one, but don’t be so quick to snip.

Closing remaining accounts right after a bankruptcy can do more harm than good for your credit future. Keeping the cards and using them judiciously and paying them on time will be far easier than getting new ones.

If you don’t trust yourself and are afraid you will easily fall back into bad habits, lock the cards away in a safe deposit box or safe. Give them to a spouse or family member to hold. Do whatever you can to force yourself to have to think before you spend.

Start Something New

Deciding when to apply for new credit can be tricky and should be done not for the purpose of increasing your buying\spending power, but for improving your credit score. The depth of the dip your credit score took will determine if you could, or even should, apply for a regular credit card or a secured card. Regardless of which you ultimately get, keep your eye on the prize and spend only what you can afford to pay for.

Think carefully about every purchase and credit application and use your own experience as a guide for what not to do. Consider what behaviors or habits brought you to bankruptcy in the first place, and be mindful not to repeat them again.

Take It Easy

Slow and steady wins the race in the long term, and when it comes to rebuilding your credit, this is the best course of action. Give yourself the time you need to develop new good spending and paying habits, and plan your credit recovery over time. The road back to financial credibility is accomplished one step at a time. This includes applying for new credit, so start small and climb your way back up the credit ladder.


Posted in Bankruptcy