Undoubtably the decision to declare bankruptcy is very difficult. The goal of filing bankruptcy is to give a troubled debtor a fresh start, yet it affects your future credit, your reputation and your self-image. Thankfully it also considerably improves your short-term quality of life, it alleviates many of your financial obligations, and you may be able to obtain new lines of credit within one to three years of filing.
After you’re discharged from your debts, you begin a recovery process. Your credit score will rise, and as that happens, you begin to qualify for loans again. What are the best ways to ensure you get your credit back on track? The following guidelines will help you qualify for loans again in the fastest manner possible:
Prepare a budget
Budgets show a clear picture of where your spending weaknesses are and provides the structure for you to get stronger in those areas in order to use your income to cover your expenses. Make sure you are basing your income for your budget on your monthly take-home pay instead of your salary. An effective budget is likely going to involve some difficult choices – but keep in mind, these little choices will add up to something substantial and tangible, making the whole process worthwhile.
Make payments on time
One of the best ways to quickly repair your credit post-bankruptcy is to pay your bills on time. Paying your mortgage or rent on time, and paying your car loan or lease on time will help improve your credit score and keep you from getting back in trouble with debt again.
Prepare an emergency fund
It may seem like a tall task, but you can make it happen – there are plenty of ways to quickly save up emergency fund money by either increasing your income or decreasing expenses. Start by identifying habits you can break. You can start small. Some examples – stop eating out, brown bag your lunch at work, get rid of unnecessary cable tv, stop smoking, or stop drinking coffee at coffee shops. It all adds up. For extra income, consider selling your non-essentials and/or getting a second job. Other ideas include carpooling as often as you can, buying used instead of new, and starting a change jar.
Get a secured credit card
Sounds risky? Not if you are careful. Get one credit card for emergencies, but when you buy things, try to pay by cash, check or debit. If you do use the credit card, be sure to pay it off in full every month, and on time.
Beware of impulse purchases
We’ve all been there – you see something in a store that you want and get a momentary thrill as you consider buying it. But since it is not something you need or intended to buy, resist the urge. Giving in to impulse buying is hard on your wallet and prevents you from developing sound financial practices.
Get a copy of your credit report
Keeping an eye on your credit after bankruptcy is one of the best uses of a credit monitoring service. By watching your credit score, you can track your progress to know your efforts are having the effect you want. You can obtain a copy for free at www.annualcreditreport.com. Check it every 6 months. You’ll be able to see when you’ve recovered enough to do bigger things, like buy a new home.
More than likely, your credit score will have increased post-bankruptcy because now you are a better credit risk to lenders. If you want to purchase a home, you may have to wait at least two years post-bankruptcy discharge, but you must be realistic on what you can afford. Affordability means you can put down 15 to 20 percent without drawing down your savings, be able to finance, and not exceed 25 percent of your take home pay.
After bankruptcy, you may think you are the last candidate lenders and credit card issuers would consider, but that’s not quite true. You will have to do a few things to prove yourself but before you know it, your recent history will finally show you are a good credit risk, and your vigilance in restoring your credit reputation will pay off.
Even if I was not the lawyer who handled your bankruptcy, I am happy to help you as you deal with the aftermath of your bankruptcy. I offer a free, face-to-face consultation at my Cherry Hill, NJ office. I will provide honest answers to your questions and let you know what I can do to make this process go as smoothly as possible. You can reach me by phone at 856-488-1200 or you can also contact me via e-mail.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.