It is no secret that filing Chapter 7 or Chapter 13 bankruptcy is not going to do wonders for your credit. But, if you have read my other blog postings you know that you aren’t thinking that much about your credit score when you file bankruptcy. You are thinking about our ability to provide necessities such as a roof over your family’s head and food on the table and how that might not happen if a creditor is able to garnish 25% of your net income or if a mortgage foreclosure is filed against your home.
After your bankruptcy petition has been filed, you have attended your 341 meeting of creditors, signed any reaffirmation agreements and completed your financial management course comes the best part…..when you receive your bankruptcy discharge order that is the legal relief from your debt that you needed. At that point you have received your financial fresh start. But then what? The reality of the situation is that you probably don’t have a lot of money saved and you need to figure out how to rebuild your financial life.
First things first. Get at least $1,000.00 in an emergency fund. Having an emergency fund is the key to staying out of debt. Over time build your emergency fund up at every chance you get until you have amassed six months of living expenses. But get $1,000.00 in a separate liquid savings account as soon as possible.
After your bankruptcy is discharged is the time to start rebuilding your credit. Please do not mistake the opportunity to rebuild credit for the opportunity to use credit. There is an important distinction. When I say that you want to rebuild your credit I mean getting either a secured or unsecured credit card and using it to fill your gas tank up once a month then paying it off in full. Using credit is going to a used car lot and paying 24% interest for a hunk of junk.
My Indianapolis bankruptcy clients tell me that after they receive their bankruptcy discharge they will often receive offers for car loans and credit cards and they just aren’t sure what to do with them. Take the car loan offers and throw them in the trash. Even if you are having a vehicle emergency and need to get another vehicle after the bankruptcy discharge you are better off to buy an inexpensive car for cash that will help you get by until you can afford a better car. Perhaps you can borrow a car from a family member or a friend. Maybe your significant other has a car and you can make do sharing a car for the time being. Whatever you do, avoid the high interest car loan that will put you right back into debt even though you just got your financial fresh start.
Credit cards are another story. I personally don’t like credit cards. It has been proven again and again that we spend less money when we are spending cash that is a limited (budgeted) amount each month. But, credit cards are certainly a useful tool to rebuild your credit after bankruptcy. About thirty (30) days after your bankruptcy discharged is entered check your credit report at www.annualcreditreport.com to see if there are any inaccuracies on your report. If there are any debts that you discharged in bankruptcy that are still being reported as late you should dispute those entries on your credit report. This is done through writing a letter to all three credit reporting agencies (Experian, Trans Union and Equifax). Many examples of a dispute letter can be found all of the internet. Choose a template and follow it. The credit reporting agencies will have thirty days to respond to your request. If there are incorrect entries on your credit report do not apply for a credit card until they have been resolved. These incorrect entries could cause you to be denied for a credit card and further damage your credit.
Finally, when you do apply for a credit card know the qualifications to be approved for the credit card before you apply. It may be necessary for you to apply for a secured card. A secured credit card requires you to deposit a sum of money into an account that you cannot access and if you fail to repay the bank for purchases made on the credit card the bank can take the money you deposited into the account.
Again, charge your gas once a month on the card and then pay it off every month. You do not want to max out the card each month and remember that your credit limit will be much lower than it was prior to bankruptcy. You also do not want to carry a balance because the interest rate will be high. Remember that the credit card is a tool to rebuild your credit and be careful that you don’t use it to get yourself back into debt. So long as you make all of your payments on time, you will find that your credit will build back up naturally over the course of a few years. It is very important not to make any late payments, which will stint your progress considerably.
Congratulations on receiving your discharge order! Make the most of it and enjoy your new financial life.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.