Life After Bankruptcy

If you are considering bankruptcy then you must surely have questions about what lies ahead after the bankruptcy process is complete. Will you ever be able to get credit again? Will you be able to own a home?

The answer to these questions is “yes.” It is true that the bankruptcy will remain on your credit history for ten years. But that does not mean that it will cause harm for that long. Once you show lenders that you are able to pay your bills, the damage from the bankruptcy will largely be behind you. Your credit rating can fully recover in as little as two years.

If you want to get back on your feet as fast as possible, the best way to accomplish this is to participate again in the financial mainstream as quickly as you can. After bankruptcy people sometimes have the desire to lay low, forego the use of credit, and pay cash for everything. That plan may be exactly right for some. But if your goal is to rebuild your credit as quickly as you can, the best way is to get back in the game and show lenders that you know how to manage your debts.

Obtaining credit after bankruptcy is easier than you might think. In fact, many creditors will offer credit immediately after your bankruptcy discharge. That is because a person can file for bankruptcy only once every eight years. Creditors know that if they lend money right after your filing then you will be unable to discharge that debt in bankruptcy and they are more likely to get paid. Granted, the interest rates and terms they will offer at first may not be the most favorable. But with some planning and discipline you can get back to a positive credit rating and favorable terms very quickly.

Here are some steps you can take to actively work on improving your credit after filing bankruptcy:

(1) Open a checking account and savings account, preferably with a credit union. It is easier to establish a personal relationship with a credit union than it is with a bank. If you manage your finances well, the credit union is more likely to be there for you when it is time to seek a loan for a house or a car.

(2) Apply for a secured credit card. This type of card is easy to get because your credit limit is secured by a cash deposit that you place in a bank account. Having a secured card allows you to things right away that require a credit card, like renting cars, making plane reservations, etc. Use this secured card for everyday expenses instead of paying cash. When you make payments do not pay off the balance in full. Let a little bit roll over to the next month. Credit cards with no balance do not have any meaning for your credit score. When you do make payments, make every payment on time. Using this process will help you to demonstrate your ability to use credit responsibly.

The following is a link to a web site listing some of the better offers for secured credit cards. http://tinyurl.com/lwdf4l

(3) Apply for store and gas credit cards. Use these cards for necessities. Use less than a third of your “available credit” at any given time. And again, when making payments, don’t pay balances off in full. Let a small part of the balance roll over each month. Make every payment on time.

(4) When you are ready for auto loans and other types of larger secured loans, look for lenders that advertise themselves as “bankruptcy friendly.” Such loans are available surprisingly soon after your bankruptcy discharge. As always, shop around. Make sure you fully understand all the terms and fees. Make all payments on time.

(5) Pay all utility bills and rent on time.

(6) For student loans and other debts that are not discharged in bankruptcy, make sure that you pay these debts on time.

(7) If you reaffirmed any debts in your bankruptcy, be careful to pay those on time.

(8) Check all your credit reports regularly. If you see any errors, work aggressively to correct them. The credit reporting companies provide instructions on how to do that.

(9) Always avoid “payday” and “auto title” loans.

(10) Make a budget and stick to it. Analyze whether you are living within your means.

Filing for bankruptcy is an emotionally challenging experience. Getting back on your feet afterwards is also not easy. But the key point to remember is that bankruptcy is a fresh start, not an unhappy ending. There is no benefit to struggling forever with an impossible debt load. If you are proactive, you can rebuild your credit score quickly and get on with life. Bankruptcy is often the fastest and most responsible way for you and your family to reach debt freedom.