Life (and Getting Credit) After Bankruptcy

Bankruptcy only seems like the end of everything in your life. In reality it is only the end of your previous life. Bankruptcy was designed to wipe the slate (mostly) clean. Now you have to start over with your credit, in almost the same position as when you began to establish credit. The biggest difference between establishing credit after bankruptcy and establishing for the first time is that you have already made the biggest mistake. It takes a bit of the fear out because you have already survived the worst. Now the trick is not to repeat it.

After you file for Chapter 7 or Chapter 13 bankruptcy, you should check your credit score. Your score will take a hit because you filed, but you want to make sure that is why your credit score is low. Sometimes the changes brought on by bankruptcy are not immediately applied to your credit score so you could still be hurt by your delinquent payments and other accruing debt. Talk to your attorneyabout making sure that the changes were applied and then even after bankruptcy, continue to check your credit score.

The first thing you need to do after bankruptcy is finish paying off any debt that was not discharged in bankruptcy. Because this varies, a good bankruptcy attorney will help you determine what will and will not be discharged. Once you know what you still need to pay off, get started on that first and get it over with as fast as you can. Think of it like ripping off a Band-Aid; the faster you do it, the less it hurts. Eliminating post-bankruptcy debt can help you get back to your life.

Once you have taken care of the past, now you can move on to the future. Get a credit card and try not to do what you did last time. Never carry a balance, pay it every month on time. This may show creditors that you are handling your finances responsibly and may make them more inclined over time to extend more credit. After bankruptcy, the best and most likely only type of credit card available to you is the secured credit card. A secured credit card requires an attached savings account and usually comes with an annual fee and higher interest rates. However, because of the attached savings account this should not be as much of a problem as perhaps it was last time. The amount you deposit into that savings account is your credit limit on the secured card. That’s it. If you only put $200 for that month, your credit limit for the month is $200. If you go over that limit, the company will deduct the excess from the amount you deposit next month. So, if you go over by $20, and next month you put in another $200, the company will deduct the overdue amount and your new balance for the month is $180 (minus whatever interest they charge).

The other change you should make is to start setting aside money every month in a savings account. The recommended amount in a savings account is enough to cover your expenses for the next three to six months. Immediately after bankruptcy that may not be an option but you should still put aside something. This will help you avoid the pitfall of relying on credit in an emergency or being late in paying bills because you have a cash reserve to fall back on if life happens.

Rebuilding credit is a matter of avoiding what got you into trouble in the first place. Pay all of your bills promptly and in full. Never carry a balance on your credit card. Set aside a little money every month for the emergencies that are bound to happen. If you can do all of this you will be well on your way to getting back on track. Ultimately, a bankruptcy filing is wiped from your credit report in up to ten years like a traffic ticket is expunged from a driving record over time. Good luck!