Rebuilding your life after bankruptcy – including your credit
rating, finances and your emotional well-being – can sometimes seem like an
overwhelming task.
But if you've recently filed for Chapter 7 or Chapter 13
bankruptcy protection, it's important to realize that there is life after
bankruptcy. And it doesn't have to be a life where you're treated like a
financial outcast and banished to years of credit exile.
On the contrary, life after bankruptcy can be enormously rewarding
– but only for those who strategize properly and commit themselves to not
wasting the second chance that bankruptcy can offer. Ultimately, how well you
rebound from a bankruptcy filing depends on the post-bankruptcy steps you take
to safeguard yourself against future financial calamities.Here are five steps
to speed up your recovery after bankruptcy – and help you get on with the
business of living life well without the stigma of the bankruptcy process.
Let Go of the Guilt and Shame
If you've gone through bankruptcy – or are contemplating it –
you're certainly not alone. In 2010, personal bankruptcies in the U.S. rose by
9% to 1.53 million filings. Also, a May 2011 survey from FindLaw.com revealed
that one in eight adults in the U.S. – 13% of the population – admit they've
considered bankruptcy. These sobering statistics are telltale signs that many
Americans are still battling the lingering affects of the Great Recession.
Nevertheless, people who've filed for bankruptcy protection are
often wracked by guilt and shame. It's not uncommon for bankruptcy filers to
say things like "I feel like a failure" or "I'm so disappointed
in myself."
But beating yourself up about your predicament won't make your
situation any better. In fact, succumbing to a steady stream of negative
emotions about your bankruptcy can even be harmful to you by preventing you
from moving forward in a positive way.
A better strategy: Resolve to make peace with the past by letting
it go, and don't dwell on negative thoughts or wallow in self-pity.
Reflect and Regroup
How do you get to a healthier place emotionally if you're
disappointed about the past and perhaps experiencing regrets about choices you
made?
"You really need to ask yourself several key questions,"
Bridges says, "including 'How did I get here? What could I have done
differently? And what have I learned from all of this?' " Your answers
will help you create a better financial afterlife in the wake of bankruptcy.
Create a Realistic Budget and Pay All Your Existing Bills on Time
After a bankruptcy, you must become extra vigilant about your
finances. Even if you've never created – or stuck to – a budget in the past,
now is the time to get serious about doing so. Your budget will act as your
spending plan, helping you to manage cash flow and preventing you from racking
up unnecessary debt.
"Understanding your budget means you try to live below your
means and stop keeping up with the Joneses "Your budget should also have a
line for saving, so you can pay yourself first."
Meiers and other experts say having an emergency fund is vital to
deal with future emergencies or unexpected events that can derail even the best
of budgets.
Also, make it a priority to pay all your current bills in a timely
manner. Set up automatic bill payments, and remember to pay your rent on time
since rent payments are now being tracked by the credit bureau Experian and
will affect your credit score.
Repaying your existing bills as agreed will be one of the single,
most powerful things you can do to restore your finances and your credit,
according to Bridges, who has also written the free e-book Your First Step to
Credit Restoration.
"prioritize your expenses.
Pay the ones necessary for survival first, such as food, housing and utilities.
This also helps protect your credit score, because a missed mortgage payment
can hurt your credit score."
Pick a Credit Card That Will Help You Rebuild Credit
Experts agree that another key strategy to rebuilding your credit
rating after bankruptcy is to obtain a secured credit card. With a secured
card, you deposit a given amount of money, such as $500, into a bank account
and that $500 becomes your credit limit. By charging small amounts each month
and repaying your debts as agreed, you can gradually rebuild your credit.
"Some of these (secured) cards will reward responsible
borrowers by upping the limit without an additional deposit. "Some will
even convert the account into a traditional credit card."
A few caveats about secured cards: First, recognize that at some
banks, not everyone qualifies for a secured card, particularly if your
bankruptcy is less than a year old. Also, stay away from secured cards that
charge high fees, that don't report your payment history to the credit bureaus,
or that ask you to call a 900 number (you'll be charged for the call).
Separate Fact From Fiction About Bankruptcy
Bankruptcy filers are often force-fed a host of myths and misconceptions
about how horrible their lives will be in the wake of a bankruptcy proceeding.
While life after bankruptcy certainly won't be a cakewalk, unfortunately, much
of the information doled out is flat out wrong, according to credit experts as
well as people who've successfully and quickly bounced back from a bankruptcy
filing.
First, there's the incorrect notion that bankruptcy will
automatically disqualify you from getting a mortgage for at least 10 years.
Wrong! You can actually be in the middle of a Chapter 13 bankruptcy proceeding
and still get an FHA home loan.
There's also the false assertion that getting a credit card will
be next to impossible for at least seven years. But this is untrue as well:
Most bankruptcy filers receive a slew of credit card offers from banks almost
immediately after their bankruptcy is discharged. One study showed that 96% of
consumers were offered new credit within a year of declaring bankruptcy.
And then there's the wrong-headed idea that car dealers and
lenders will only approve your application at sky-high interest rates. Not so.
As many people who've gone through bankruptcy will attest, there are numerous
auto companies and lenders willing to finance a vehicle or approve loans at
reasonable rates after a bankruptcy.
And while it's true that bankruptcy will remain on your credit
report for up to 10 years, it's definitely not the case that it will take a
decade to re-establish a positive credit rating. In fact, many people's worst
credit problems – even bankruptcy – are often not as bad as they think.
"Because credit scoring models typically lend more weight to
your recent activity than to the mistakes you've made in the past, you can
change your habits right now and begin reestablishing yourself as a good credit
risk for a purchase or refinance loan in just six to 12 months," says
Bridges, who offers free credit report consultations to consumers.
