Bankruptcy is a difficult, complex legal process and usually initially will harm your credit. It is most often used as a “last resort”, but is a valuable legal tool for you and your family to financially “start over”. It stays on your credit report for 10 years, but although the primary impact on your credit will be great, it lessens over time.
You may have always been very diligent about your finances and bills, but unforeseen events (especially in these times) may force you to file. Do not dismay, however; this legal move is designed for just that. Most often after filing, and time passes, you’ll find that you could have a better credit score than you had previously.
Deciding to file bankruptcy and navigating through the process is probably the hardest hurdle to overcome. Consulting with a Plymouth bankruptcy attorney will be invaluable in easing this stressful process and moving forward successfully.
There are definite steps that you can do immediately to make this process easier to handle.
Creating a firm budget – during your pre-discharge credit counseling, you should have provided information about budgeting. There are free credit counseling agencies that can help you put together a firm budget. By having a budget for after your bankruptcy, the financial stress you’ve been under will be far less and allow you to focus on a better future.
Begin to build an emergency fund – Studies have shown that having as little as $250-500 in savings can get families through some emergency expenditures. This will help you meet unexpected expenditures, and not have to apply for small high-interest loans, or running up new credit cards. You do not want to start the downward financial spiral once again.
Practice good credit habits – Once you get to new lenders to work with you, keep balances low and even try to pay short term credit in full every month.
You should work closely with your bankruptcy attorney during the legal process but also ask for guidance after your debts are discharged. Your attorney can offer vital information on free or low-cost services that will help you never have to go through this financial stress ever again.
What are the First Steps to Rebuilding Credit?
There are tried and true steps that can help you actively rebuild your credit after bankruptcy, but remember, it does take time. Some suggestions are:
Monitor your credit closely – There are free or low-cost methods of monitoring your credit and its progress. This will be a great help to you in determining if you are doing the right things to build your credit back. They can even give you guidelines and tools to use to project what your financial moves should be. How some (like paying off new credit card balances every month), have a great effect on your score, and others may have a negative effect.
Get a secured credit card or retail store issued card – If your bankruptcy rules out traditional credit cards for a time, consider a secured card. You may have to put up a small balance, but using the card wisely will improve your score over time. Retail store cards also may be easier to obtain, but also should be used only when needed, and balances kept low. Whatever cards you can obtain, make sure they report to the credit bureaus so it will help your score climb.
Don’t repeat past mistakes – Learn from the mistakes! If you don’t listen to the advice of your bankruptcy attorney, and credit counselors you might end up right back where you started. The good news is, you don’t have to! By following sound financial guidelines, your credit could end up better than ever.
Begin with a secured loan or credit-builder account – The types of credit accounts you have after a bankruptcy matter. A small personal loan (if available), or a secured loan is a good way to start. This loan can be used for almost anything (car repairs, home repairs, etc.). Having more than one type of loan can help your overall score.
A credit-builder account is “credit” you can get with little or no history or poor credit. It’s essentially a loan combined with a CD (certificate of deposit). Instead of making a lump sum deposit though, you make small payments into the account. They usually have a 12 or 24-month term, and they differ as to when you can access the funds. Some let you use the funds as you accrue them (with rules & contingencies), and others not until the terms are complete
Credit After Bankruptcy is Possible, But Be Careful
After you file for bankruptcy and your debts are discharged, there is no “magic wand” that will give you more credit overnight. It’s going to take time and effort on your part. Most all the major credit agencies have free tools that you can use to help you immensely.
By using these financial tools, you will come to a better understanding of what makes up, improves, or hurts your credit rating. You may think that avoiding all credit is best, but in today’s financial arena, that isn’t the case. Focus on using your new credit wisely and sparingly.
Using a local Plymouth bankruptcy attorney, you’ll get through this necessary but stressful process as smoothly as possible. Your bankruptcy attorney can also help you before, during, and after the bankruptcy with matters such as:
- Asset protection
- Lien release
- Credit card debt relief
- Debt negotiation
- Loan modification
- Rebuilding your credit, and more…
You can end the financial nightmare of debt collectors, repossession, foreclosure, and more. You, and your family, can have a bright financial future ahead.