Have you recently filed for bankruptcy? If so, then you know the damage it can do to your credit score. No matter how bad things might seem right now, all is not lost! While recovering from a bankruptcy filing takes time and discipline, there are steps that you can take to get back on track with rebuilding your credit. In this blog post, we’ll discuss everything from creating a budget to using secured cards – so you can start on the path toward financial freedom sooner rather than later.
The Bankruptcy Process
Bankruptcy can be a daunting process, but understanding what to expect can help ease the stress. It’s important to know that bankruptcy is not a quick fix for financial troubles, but rather a legal process that can provide relief from certain debts.
Typically, the first step is to file a petition with the court, which will trigger an automatic stay on collections and legal actions against you. From there, you’ll work with a trustee to create a repayment plan or have your assets liquidated to pay back creditors. It’s a complex process, but with the right guidance and understanding, it’s possible to come out the other side with a fresh financial start.
How Long Bankruptcy Stays on Your Credit Report:
- Chapter 7 Bankruptcy – up to 10 years
- Chapter 13 Bankruptcy – up to 7 years from discharge
Understand and Monitor Your Credit Score
Facing bankruptcy can take a toll on your credit score, making it difficult for you to take out loans and establish financial stability. And while your score might drop between 100 to 200 points after filing, it’s possible to build it back up.
The key is to start by checking a copy of your credit report, which can give you insight into your starting point. Once you know where you stand, you can begin taking action to repair your credit. It’s equally essential to monitor your progress from time to time, ensuring that there are no inaccuracies. Be sure you check your credit report to see that all debts from your bankruptcy are discharged and accurately recorded.
If you notice any other drops in your score, it can be a sign of a problem; catching it early can ensure that identity theft isn’t affecting your credit. Be sure to check your credit score using the same service so it’s consistent. You can often get free score updates from credit card issuers, or secure services such as NerdWallet.
Establish a Budget and Stick With It
Did you know that financial counseling is a part of the bankruptcy process? Use that knowledge to take charge of your spending by establishing a budget. With a well-planned budget, you can prioritize paying off outstanding debts and prevent any new ones from arising.
Learning about budgeting, saving, and wise spending habits can not only aid in credit recovery but also provide long-term financial stability. With perseverance and dedication, those who have been through bankruptcy can take the necessary steps towards a better financial future.
Build an Emergency Fund Into Your Budget
Part of a healthy budget is an emergency fund to put toward unexpected expenses. Many people face bankruptcy because of medical bills they weren’t planning on; an emergency fund can help cover the cost of doctor visits or missed work due to injury.
By having a stash of money put aside, you can avoid relying on credit cards or loans to cover these unexpected expenses. This will help you avoid additional debt and start to improve your credit score.
How to Create an Emergency Fund
A solid emergency fund should include enough money to cover at least three months’ worth of expenses (rent, utilities, groceries, etc…). You can gradually build up this fund by putting aside a percentage of each paycheck, whether manually or having it automatically transferred to savings.
You can diversify your savings by doing micro-investing, using a high-yield savings account, or switching to a cash-only budget. If you ever have the urge to indulge in an impulse purchase, or eat out instead of cooking the food you have at home, instead put that money into your savings for a rainy day. All these small habits can add up to a hefty emergency fund.
Smart Credit Card Usage
Rebuilding your credit after bankruptcy is possible with some perseverance and smart financial decisions. One of the best strategies is to reduce your credit card use and keep your balances well below the credit limit. This can demonstrate to lenders that you are capable of responsibly managing your finances. Additionally, if you need to use credit, it’s a good idea to apply for a secured credit card, which requires a deposit as collateral. By following these steps, you can start to rebuild your credit and work towards a stronger financial future.
Credit Builder Loans
Have you heard of credit builder loans? They are designed specifically to help people reestablish good credit after bankruptcy. With a credit builder loan, you’ll borrow a small amount of money and make regular monthly payments, which are reported to the credit bureaus and can help demonstrate responsible credit behavior.
Over time, as you make timely payments and your credit score improves, you may be able to qualify for other types of credit at more favorable terms.
Slow and Steady Wins the Race
After filing for bankruptcy, the key to rebuilding credit is to avoid the temptation of taking out new loans or credit cards. Instead, focus on paying off your existing debts gradually and consistently. You may have to adjust your spending habits and create a budget that works for you, but it’s worth the effort. With time and dedication, you can improve your credit score and regain your financial footing. Remember, patience and persistence are key to a successful credit-rebuilding strategy.
Bankruptcy doesn’t have to keep you from achieving your financial goals. Following the steps outlined in this post is an excellent start to rebuilding credit after filing for bankruptcy. However, be sure to always check your credit reports regularly to ensure accuracy and track progress.
Taking the time to understand what went wrong and developing a plan can help you achieve a solid financial future, even after bankruptcy! Seeking professional guidance from the experts at Rulon T. Burton is one of the first steps to take to help you on your bankruptcy journey and eventual recovery.