Taking steps to rebuild your life following a bankruptcy – including your finances, credit rating, and emotional well being – can often feel like a daunting task.
The first step is realizing that there is life after bankruptcy, and it doesn’t have to be a life where you are eternally treated as a financial outcast. In contrast, taking control of your finances following a bankruptcy can be enormously rewarding. How well you rebound from a filing depends on proper strategizing and commitment to safeguarding yourself against future financial damages.
If you’ve recently filed for a Chapter 7 or Chapter 13 bankruptcy, you are not alone. Close to 400 thousand people file for bankruptcy in the U.S. on a yearly basis and they are all asking the same question – What now? Here are 6 ways to bounce from your bankruptcy and navigate the next few months of your life.
Steps to Rebuilding Your Credit After Bankruptcy
1. Pay Yourself
This might seem like an ironic place to start, but it is one of the most important steps to take after filing bankruptcy. Having savings is your first line of defense when it comes to protecting yourself in the presence of unexpected events. Start by setting aside 5% of your net income on a monthly basis. Some banks have the option to set up an automatic withdrawal into your savings account, so you won’t even have to think about it.
2. Set a Realistic Budget
Budgeting is something that a lot of people do, but it is not often used as strong enough of a financial tool as it should. Your budget should include income from all of your sources, as well as realistic numbers of all of your expenses. To ensure that you are sticking to your budget, refer back to it on a daily or weekly basis. Your budget should guide all of your spending decisions.
3. Rely on Cash
You may be leery of entering into any credit agreements following your bankruptcy, and that’s not necessarily a bad thing. When you are forced to operate with cash, you have to stick to your budget. Make an effort to only purchase necessities, and if your budget allows for a small amount of “play” money every week, take out cash when you get paid and don’t spend a penny over. Eventually, this spending habit will become normal for you.
4. Apply for a Secured Credit Card
The last thing you might be thinking after filing for bankruptcy is getting more credit. However, you do need to show some credit responsibility in order to begin improving your credit rating. If you decide to take on some credit responsibility, it’s important to remain cautious. It is not uncommon to receive a slew of credit card offers in the mail following your filing. Creditors know that you will have a time frame of four to eight years before you can file again and are willing to take advantage of your current financial vulnerability. If you can, start with a secured card and rebuild your credit from there – just be sure that institution reports to all three credit bureaus.
5. Avoid Buying a Car
In general, large purchases are not advisable when you are trying to get back on your feet financially. While some lenders will be willing to give you a loan after a bankruptcy, you’re likely to receive some pretty expensive rates and fees. Furthermore, financing a new car will add to your overall monthly expenses. If you can get by without it, it’s best to continue driving your current car and save the money you would have otherwise spent on a monthly loan payment.
6. Focus on Your Current Financial Relationships
One of the biggest factors tied into your credit rating is the length of your open accounts. While you could very well apply for a credit card at a new company, it might be better for you to continue positive relations with any existing accounts that remain after your bankruptcy.