The First Steps to Rebuilding After Filing for Bankruptcy

Bankruptcy can be a liberating process. There’s a great sense of relief that comes over many debtors when they realize they’ll no longer be drowning in hundreds of dollars in payments each month or hounded by creditors, in constant fear of collection lawsuits or repossession. But along with that relief can also come feelings of guilt that debtors let themselves reach a point where they had to file for bankruptcy. This is common, but unreasonable. On average, more than 1 million people in the United States file for bankruptcy each year, and millions more consider doing so. And once you’ve filed for bankruptcy, you can begin the process of rebuilding your finances.

Step 1: Think About Why You Filed for Bankruptcy

There are many different reasons that people file for bankruptcy. Medical expenses are one common reason for bankruptcy in the United States, and unfortunately this can be difficult to avoid, especially given the rising cost of health insurance and premiums. But if you had to file for bankruptcy because you took on a large amount of debt with credit cards on unnecessary purchases, you may need to re-think your finances going forward. This might mean moving to a smaller place, creating a monthly budget (and sticking to it), or trying to pay expenses with only cash.

Step 2: Fix Your Credit

Your credit score is how lenders determine whether they’ll loan you any money, the maximum they’ll loan you, and the rate of interest they’ll charge. Credit scores are a necessary part of modern life, and unfortunately they take a big hit following bankruptcy. However, any debtor can begin rebuilding their credit immediately after filing. With the bankruptcy hopefully freeing up some extra cash each month, that can make a big difference in paying bills on time each month. Showing a history of timely payments can help lenders feel more confident when they look at your credit history. And while a credit card can be a very bad idea for some people after filing bankruptcy, a secured credit card that you pay money into ahead of time and that is monitored by credit reporting agencies can go a long way to rebuilding your credit score.

Step 3: Budget

When you’re coming out of bankruptcy, it’s important to begin disciplining yourself when it comes to spending money. If you really look at your monthly budget, you might be amazed at how much money you spend each month on unnecessary luxuries like morning coffees, alcohol, or smartphone apps. Once your debts have been discharged, it’s the perfect time to get down to brass tacks and make a hard budget that you’re going to stick to. Look at your monthly income, and determine exactly how much you’re going to need for necessities like housing, utilities, and car insurance. You don’t have to live on a tight budget forever, but it’s a good idea for at least a few months to get into the habit of financial responsibility.

Step 4: Save

Part of that budget plan should include putting money aside for the future. Remarkably few Americans have any money in savings, but putting any extra money that isn’t going toward necessities into a savings account is a great idea. This money can be used for emergencies down the line that can avoid filing for bankruptcy again in the future.

Step 5: Relax and Understand That Things Will Get Better

While your finances may be tight for awhile after filing for bankruptcy, you might be surprised to learn that filing for bankruptcy doesn’t make you a complete pariah to lenders. You can qualify for an FHA-backed mortgage just one year after filing for Chapter 13 bankruptcy and making repayments under the plan. Many car dealers are willing to work with debtors soon after filing for bankruptcy, and offer reasonable interest rates. And nearly everyone who has gone through bankruptcy receives credit card offers within one year of filing, The key is just to be more responsible with these debt instruments and use them to improve your credit score as you move on with your life.

Thinking About Filing for Bankruptcy?

A bankruptcy attorney can guide you through filing for Chapter 7 or Chapter 13 bankruptcy and help protect your assets. The Law Offices of Melanie Tavare of Castro Valley can assist you in reducing or eliminating debt through Chapter 7 or Chapter 13 bankruptcy. Contact the Law Offices of Melanie Tavare at 510-255-4636 or online.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.