Filing for bankruptcy gives you a new start, accompanied by some challenges. It will adversely affect your credit rating, which was probably not good to start with. The bankruptcy will remain on your record for ten years, and lenders will consider you a risky client after writing off some of your previous debts. For a while, it might be difficult for you to obtain a loan on your credit card, and when you finally succeed, the rates will be unreasonably high. For many people who file for bankruptcy, the recovery process is often long and challenging. However, with discipline and focus, it is possible to make a fresh start after bankruptcy. If you’re wondering how to start over after bankruptcy, a bankruptcy attorney can guide you through the recovery process.
Below are some tips that can help you recover and rebuild your life after bankruptcy:
Avoid an Extravagant Lifestyle
After filing for Chapter 13 bankruptcy, the bankruptcy court reorganizes your debts, and you’ll still be repaying your debts every month. The court will allow you to retain some amount for your upkeep, and the rest of your income will go to your creditors. During this time, it is wise to cut down your expenses and live a modest lifestyle. This means that you should probably move to a cheaper apartment and reduce your monthly grocery costs. Cutting down on your expenses will enable you to set aside some money for your emergency fund.
In the case of Chapter 13 bankruptcy, you will be free of debt when you finish paying the debts under the reorganization program. However, you’ll still not be able to access credit for up to 10 years from when you filed for bankruptcy. It is important to have some funds that you can use in case of an emergency.
The same case applies after you file for Chapter 7 bankruptcy. You’ll write off and walk away from most of your debts. If you are in employment, you’ll have your salary and will have to meet your expenses through cash payments before you qualify for a credit card. Leading a modest lifestyle will help you save money for future use.
Re-examine Your Budget
Even if other factors had led you to bankruptcy, a faulty budget might also have contributed to your financial crisis. After filing for bankruptcy, you should take time to re-examine your budget. Find out what went wrong? Where did the original budget fail?
As you re-examine your budget, consider:
- Fixed expenses
- Variable expenses
- Irregular expenses
Fixed expenses remain constant every month and include bills like car payments and house payments. Variable expenses fluctuate every month and include expenses like clothes, entertainment, and food. Consider the money you spend on variable expenses and identify instances of overspending where you did not comply with your budget. Irregular expenses comprise expenses that do not recur every month, including gifts, medical expenses, and insurance payments. Pay close attention to your spending under gifts and cut down on these costs.
It would be best if you also defined your monthly savings target rate. For instance, you can decide to be saving 10% of your monthly income. Depending on the nature of expenses, you can lower some expenses and erase others from your budget. It would help if you kept chopping your expenses from the budget until you remain with your target savings rate.
Monitor Your Credit Report
It’s no secret that filing for bankruptcy will have an adverse effect on your credit score. However, bankruptcy will not ruin your credit rating forever. You can rebuild your score over time through discipline and patience. You should examine your credit report and ensure that it reflects your bankruptcy correctly. It’s much better to have the bankruptcy records appearing on your credit report instead of delinquent accounts. All credit accounts that you have discharged through bankruptcy should have zero balances on the credit report.
Even after filing for bankruptcy, some creditors may continue to report your negative account information. It’s important to inspect your credit report regularly to avoid such instances. If any of your discharged debts show your credit score as active, you should inform the credit reporting agency.
Some of the things that you should look for while determining the accuracy of your credit reference report are:
- Accurate personal information
- Updated accounts’ section
- All discharged loans should be indicated as such.
- Accurate employer information
Keep Repaying Your Reaffirmed Loans
If you still have some debts out of the bankruptcy, especially after filing for Chapter 13 bankruptcy, you’ll be in a favorable position to rebuild your credit score. You have an opportunity to add positive information to your credit reports without necessarily applying for a credit card or acquiring a new loan. One of the most important scoring factors is payment history. After filing for Chapter 13 bankruptcy, you should pay your reorganized debts on time. If you still have your credit card, you should only spend what you can manage to repay at the end of the month.
Even if a bankruptcy record stays in your credit report for ten years, you can still rebuild your score as long as there’s evidence of responsible credit usage. Your scores will continue to improve as the years pass.
Some of your loans may not be included in a bankruptcy, especially your student loan. It would help if you kept paying your non-bankruptcy loans to rebuild your credit score. Any active accounts will continue to impact your credit score, and you should always repay them on time. You should not neglect the accounts that don’t appear on your credit score. Your aim should be to prove to creditors that you’re behind your financial mishaps.
Don’t be a Victim of Credit Companies
While striving to rebuild your credit score, avoid falling victim to credit repair companies. You’re likely to receive any offer from credit repair companies promising to remove bankruptcy from your credit record. No company can wipe your bankruptcy record from your credit report. After ten years, from when you filed for bankruptcy, the bankruptcy records will no longer appear on your credit report.
If your bankruptcy record is genuine, credit repair companies can’t assist you. The companies will take your money and file your dispute, which will not get you anywhere. No one can promise instant reports by removing your bankruptcy records from your credit report. While rebuilding your credit score, you have to be patient. Instead of focusing on erasing your records, you should focus on rebuilding your score.
Apply for a Secured Credit Card
The best of the most effective method of rebuilding your credit score is to apply for a secured credit card. It is easy to acquire a secured credit card regardless of the bankruptcy records and the accompanying low credit ratings. The collateral for a secured credit card is a cash deposit that is equal to the limit amount. For instance, if you deposit $1,000, that same amount will be your credit card limit amount.
After acquiring the secured credit card, ensure that you make all the repayments on time. After you make several on-time repayments, most credit companies will release the deposit or collateral amount to you. Upon returning the deposit to you, the credit card automatically becomes unsecured.
After acquiring a secured credit card, you should ensure that the credit card issuers share your account information with the leading credit bureaus. This will allow you to rebuild your credit score. The secured credit card will convert into an unsecured credit card after you recieve your deposit back. Even after acquiring back your deposit amount, you should actively use your credit card to ensure that you rebuild your credit score.
The larger the deposit amount you make on your secured credit card, the higher your credit limit. Having an extra credit amount that you’re not using will help build up your scores by improving your credit utilization ratio.
Secured credit cards often have higher fees than unsecured credit cards. It is important to ensure that you choose the best-secured credit card that will help you keep your costs at a minimum. Ensure that you review and compare the charges of different secured credit cards, including maintenance fee, annual percentage rate, annual fees, or any other fees. Many banks and credit unions offer unsecured credit cards. You should compare multiple credit card offers before choosing the ideal option. You should make small purchases on your credit card and ensure that you pay the amounts fully at the end of the month.
Seek a Credit Product for Your Situation
The biggest hurdle to overcome after filing for bankruptcy is to secure a new credit facility. However, acquiring a credit builder loan is essential for rebuilding your credit score. Lenders will consider you a risky client based on your pre-bankruptcy history. You can overcome this hurdle by providing evidence that you’ll be able to repay your debts on time. Some banks and credit companies might be willing to lend to you on the basis that according to the law, you can’t apply for another bankruptcy before seven years from when you filed for the other bankruptcy.
You should consider acquiring a credit-builder loan. Community banks and credit unions often provide credit builder loans. Two main credit builder loan options are available. You can opt for a secured loan whereby just like in the case of a secured credit card, you’ll place some money as a deposit and borrow against that deposit. You’ll not be able to access this deposit until you repay the loan in full.
You can also obtain a credit builder loan without placing some money upfront. In these cases, the lenders place the money loaned to you in a savings account. You’ll only access this money after you make all the necessary payments. As long as the lender agrees to share the information with the credit bureaus, you’ll be on the road to building your credit history.
You should have an open mind while applying for a credit builder loan because all the loans will come with higher interest rates and more restrictions. However, the loans will still open a door for you and help you rebuild your credit history.
Find a Co-signer
You can qualify for better loans or credit cards if you have your friend or family member co-sign the loan for you. This way, you will manage to reestablish your credit score much faster. If you have a person willing to cosign for you, you should seize the opportunity. However, you have to make timely loan payments, not just for your benefit but for the sake of your co-signer. If you default on the loan, it will affect your co-signers credit rating and your rating.
Many credit card companies do not accept co-signers. However, certain lenders, mainly auto loan companies, accept them. You may also have another individual add you to their account as an authorized user. This option will not repair your credit rating fast but will play a role in improving it.
When you obtain a new loan or credit card, whether secured or unsecured, you should ensure that you always make timely payments. You should strive to pay up your debt in full to ensure that you don’t get into trouble with creditors again. If you are late to make a loan payment with more than thirty days, it will appear on your credit report and may remain there for up to seven years. Late payments will make your journey to rebuilding your credit rating much harder.
Avoid Frequent Job Changes
Frequent job changes will not affect your credit rating but might make it for lenders to trust you. When you submit a loan application after bankruptcy, creditors will consider more than your credit rating. Job hopping may be an indicator that you have an issue of responsibility and discipline. Many lenders may not be willing to take a chance on you. However, if you have a solid job and have been with your employer for a while, lenders will consider you a dependable person. They might be willing to lend to you despite your adverse credit rating.
In addition to acquiring a good job, you should also ensure that you secure a stable home. Stable employment and residential histories will help build the creditor’s confidence in you. The stability will prove to creditors that you are reliable. After filing for bankruptcy, you might have difficulty securing an apartment because many landlords rely on credit references while qualifying tenants. If you cannot find an apartment, you may consider staying with a friend or your relative until your credit rating improves.
You should not give up if you also find it hard to find a job. Many employers consider the credit histories of potential employees. Employers do this as a measure of personal responsibility. You may have a hard time finding a job that pays you enough money to pay your bills. However, you should push on still and secure employment and remain loyal to the employer until your credit rating improves.
Have a Positive Attitude
Your attitude matters when you are trying to rebuild your credit rating - Your attitude and persistence will make a great difference in how fast you’ll be able to rebuild your credit rating. It takes both financial capacity and a good mental attitude to recover after filing for bankruptcy. You should open a savings account, build an emergency fund, and repay all your debts. This will be a way of showing that you are in control of your finances despite your tainted financial past.
After filing for bankruptcy, you have to prove to lenders that you’ve learned from your mistakes and that they can trust you again. For lenders to build trust in you, you have to be a model citizen by always paying your bills on time. If you managed to retain your credit card after bankruptcy, you should use it often and ensure you pay the debts on time.
Apply for Credit Sparingly
Your credit rating also takes into account how many credit applications you make. It’s advisable to avoid submitting several credit cards or loan applications simultaneously, especially if you’re acquiring rejections. Too many unsuccessful credit applications will give lenders the impression that you are desperate for credit, which may make them hesitate to approve your loan. If you apply for several loans, but you are unsuccessful, you should first stop applying, focus on repaying the existing loans and try again after six months.
You should not be in a rush to rebuild your credit history because you might make a mistake that might delay your credit repair. Take one step at a time, start with small loans, and repay them at the end of the month. It might take you several years, but eventually, you’ll rebuild your credit rating.
Your life after bankruptcy does not need to be a nightmare. You should consider bankruptcy as an opportunity to start afresh and build your credit rating over time. After bankruptcy, you can only move in the right direction since you’ll understand your finances better than you did before the filing. The best recovery strategy after bankruptcy is to acquire low-risk loans and repay all your bills on time and seek assistance. The San Diego Bankruptcy Attorney team is ready to help. If you have financial problems and are looking for bankruptcy solutions, contact us at 619-488-6168.