According to statistics, 97% of bankruptcies are filed by individuals. Additionally, 8% of people have filed for bankruptcy on several occasions, making up almost 16% of all the recorded bankruptcies. Staggering medical bills are the leading cause of personal bankruptcies in the United States. Others include job loss, excess or poor credit use, unexpected expenses, and divorce or separation.
While recovering from bankruptcy isn’t easy, the good news is it’s possible and could take a lot of time and effort. Bankruptcy can stay on your credit report between seven and ten years based on the type you filed, including Chapter 7 or 13 bankruptcy. This article outlines nine tips for recovering from bankruptcy.
1. Make a payment plan
While filing for bankruptcy can be a powerful solution, especially when facing severe debt issues, it doesn’t eliminate all your creditors or obligations. For example, you’ll have to continue paying your student loan unless you can prove hardship. You’ll also still pay child support arrearages, most tax debts, and alimony.
With the help of experienced and reputable personal injury and bankruptcy attorneys like those from amourgis.com, you can understand your obligations depending on whether you filed for Chapter 7 or 13 bankruptcy. Upon understanding your debt responsibilities, create a payment plan for how you’ll start clearing your outstanding debts and ultimately bounce back from bankruptcy.
2. Start saving and create a spending plan
After going through the challenges that come with bankruptcy, you may not want to find yourself in the same situation. Develop good financial habits, such as creating a savings account you can only use for financial emergencies and establishing a budget to manage your expenses and income while guiding your daily spending.
This ensures that your spending doesn’t get out of control and limits the possibility of accumulating debt again. While budgeting might seem restrictive or intimidating, it’s a wise spending tool or plan to help you meet your financial goals. Understanding how to manage your finances is crucial to recovering from bankruptcy while creating a healthy economic lifestyle for now and the future.
3. Rebuild your credit
Your payment history significantly impacts your credit report, and declaring bankruptcy means you won’t pay covered debts fully as originally agreed. This greatly affects your credit score. While a Chapter 7 bankruptcy remains on your credit report for ten years, a Chapter 13 one stays for seven years. No matter the bankruptcy type you file, lenders will view it on your credit reports and will most likely influence their decision-making.
While bankruptcy can remain on your credit report for seven or ten years, it doesn’t mean you can’t improve it over that period. Consider monitoring your credit by regularly checking your credit report and score to track your progress and learn about potential concerns that could damage your credit score further. Paying your bills on time and ensuring timely payments on your outstanding debt will help show that you’re financially responsible, helping rebuild your credit.
4. Leverage a secured credit card
A secured credit card operates the same as a regular credit card. Nonetheless, it demands an initial security deposit as your credit line’s collateral. As you continue using the line, maintain a low balance in relation to your credit limit while paying your monthly bills on time to create a positive credit history on your report. Additionally, you might not pay interest if you pay all your balances in full each month. Upon making timely payments for a considerable period, credit issuers may consider upgrading you to traditional credit cards.
5. Don’t forget why you filed for bankruptcy, to begin with
To avoid recurring bankruptcy declarations, understand how and why you became bankrupt, to begin with. It could be due to costly medical bills, job loss, sudden expenses, credit misuse, and more. You should address these issues to prevent history from repeating itself. Write a budget, stick to it and live within your means. If you cannot control your spending, avoid carrying your credit cards when leaving home. Consider setting up recurring monthly expenses and automated payments to avoid the credit card temptation, helping you rebuild your credit score over time.
6. Look for a job and home
Stable employment and residential history are necessary to prove to creditors that you’re reliable. Some landlords are now looking at credit references to screen out potentially unreliable tenants. You can stay with a relative or friend if you cannot rent a place until your credit score improves. Other employers may also consider potential candidates’ credit scores to determine their responsibility. Look for employers who don’t request credit histories to work towards bouncing back from bankruptcy.
7. Stay away from credit repair scams
When you declare bankruptcy, you might start receiving many credit repair offers. Watch out for scam signs, including asking for upfront payments, not specifying your legal rights, or asking you not to reach out to credit reporting agencies. They could even propose you apply for credit with an employer identification number or a fake social security number. Avoid such proposals as they constitute identity fraud and may land you in legal trouble. Consider consulting a professional financial advisor for advice on credit repair offers and how to find legitimate ones.
8. Create an emergency fund
With an emergency fund, you can avoid disastrous outcomes that could land you back in debt in case of sudden financial needs or job loss. Consider creating this account regardless of how much you earn and save regularly. These contributions increase over time and come in handy in financial difficulties. You can save your emergency fund money in a high-interest or high-yield savings account. This money, especially after declaring bankruptcy, can be helpful since you’ll have limited credit access.
9. Keep your bankruptcy paperwork safely
Keeping your bankruptcy paperwork is crucial because you may be required to produce their copies later when applying for car or mortgage loans. If a debt collector calls concerning a debt you thought was discharged in the bankruptcy case, the paperwork can help you prove it.
Bouncing back from bankruptcy isn’t easy. However, these tips can help you through your recovery process.