In my 30-plus years of practice, I’ve helped thousands of people through bankruptcy. In most cases, the bankruptcy filers (debtors) have accomplished their goals – stopping collection activities (calls, letters, judgments, garnishments), obtaining forgiveness (discharge) of debts, and protecting their assets (up to applicable exemption limits). Although some debts are not dischargeable (including domestic support obligations, recent tax liabilities, student loans and intoxicated driving liability), there are some tips you can follow after earning a fresh start to rebuild your credit and begin life after bankruptcy.
What does life after bankruptcy look like? It’s true that upon filing a bankruptcy case, credit cards are cancelled, the credit score takes a plunge (if not already low), and without credit, people need to utilize cash, checks, debit cards or money orders for many purchases. But it’s not true that it takes years to re-establish credit.
In fact, many credit card companies, knowing that a discharged debtor cannot obtain another discharge in bankruptcy for 8 years, view the discharged debtor as a good risk. Former debtors routinely get swamped with credit card offers and solicitations from car dealers. While most people understandingly want to jump at the chance to get credit again, they should pause and proceed slowly. Pay attention to the interest rates, terms and conditions, and the true cost of paying your bills over time.
For the unwary, it’s easy to get back in trouble again. I recommend obtaining a credit card with a small credit line, or a secured credit card with a fixed limit, that can be used and paid-off , or mostly paid-off, every month. A small balance may cost little in interest and be helpful in rebuilding your credit history. By not “maxing out” your credit limit, you will demonstrate that you can responsibly manage credit. This activity will be reported to the credit bureaus and, over time, will demonstrate prudent money management and credit worthiness. Mortgage payments and car loan payments, made in full and on time, can also raise credit scores.
Your credit reports from Equifax, Experian and Trans Union should be checked regularly and can be obtained once a year at no charge by logging into www.annualcreditreport.com. While a bankruptcy filing, depending on the chapter, will show up on the credit report for 7 to 10 years, a large factor in determining the credit score is based on recent activity. So, make sure your personal information is accurate, you recognize the creditors listed, your payments are correctly posted, and there is no erroneous information contained in the report.
Part of the bankruptcy petition, as well as the mandatory credit counseling courses you complete, involved creating a budget. Knowing how much money is coming in and what your fixed monthly expenses are helps determine how much money is available for discretionary purchases. But even if there is money left in the budget, it is wise to regularly set something aside for unexpected emergency expenses – such as car repairs, home repairs, health care and legal expenses.
The Income and Expense Schedules contained in your bankruptcy petition form a budget. The budget shows monthly income and net income after taxes. The budget also shows fixed monthly expenses and whether any money is left after subtracting expenses. This is a good model for planning your financial future. You’ll know what you can and can’t afford and whether you can handle additional payments. You’ll learn that it takes discipline to stay within your budget and planning to endure the inevitable unplanned expenses. And, by learning from your bankruptcy experience, you’ll understand that the Bankruptcy Code exists to help people overcome grave financial hardship, and confidently look ahead to your life after bankruptcy.
Greg Martucci is a good bankruptcy lawyer with over 30 years of experience who has personally handled over 1300 cases. He will counsel you about the bankruptcy options available to individuals and businesses under the Bankruptcy Code, and in particular, how the bankruptcy laws can help YOU. Call the Martucci Law Office at 630-980-8333 to schedule your FREE initial office consultation.