Congratulations! You've taken the first step toward a fresh financial start! Now it's time to start rebuilding your credit. But, wait? Your bankruptcy case is still pending and you haven't received your official discharge from the court? Not to worry - you can begin taking steps to rebuild your credit as soon as you file for bankruptcy!
As part of your bankruptcy paperwork, you will go over a budget of your monthly income as well as your monthly expenses. While the budget prepared for the bankruptcy court may or may not be detailed enough for your daily life, it is important that you do create a workable budget and stick to it.
No, it is not easy. Unexpected expenses may come up that you did not budget for. In fact, most bankruptcies today are triggered by an unexpected event — job loss, medical expenses or divorce. But learning to accommodate unexpected expenses while staying within your monthly budget will keep you on track for financial freedom well after your bankruptcy is complete. When considering a Florida bankruptcy lawyer to assist with your Chapter 7 or Chapter 13 filing, be sure to ask if there will be any assistance with budget counseling upon completion of your case.
A Savings Account, Your Credit Report and A New Line of Credit
Part of being prepared for unexpected expenses is creating a savings account, rainy-day fund or other emergency cash account. If possible, redirect the money that was being spent on credit card payments or other debts that will be discharged in bankruptcy into a savings account and start building a cash reserve to cover future unexpected expenses.
Before taking out new credit — which you will, at some point, need to do to reestablish that you are a good credit risk for lenders — you should review your credit report. There may be negative entries that are incorrect. Also, once you receive your certificate of discharge from your Chapter 7 or Chapter 13 bankruptcy, you will want to double check your credit report to ensure that the discharged debts are shown as discharged rather than as amounts owed.
When you check your credit report, you will notice that it shows that you have filed bankruptcy. This will stay on your credit report for 7-10 years. The Fair Credit Reporting Act (FCRA) allows credit reporting agencies to list a bankruptcy for 10 years. Commonly though, a Chapter 13 will only be listed for 7 years while a Chapter 7 will be listed for the full 10.
Once you've reviewed your credit report, you should consider opening a new line of credit. This line of credit should not be used for charging expenses that are out of your budget, but should be used to rebuild a solid payment history. It's very likely that once you receive your discharge from bankruptcy, you will receive several mail solicitations for new credit cards. They may be for a secured credit card or for an unsecured credit card. As long as you are using your credit wisely, paying off any balance on a monthly basis, you should see improvement in your credit score from opening the new credit card.
For some who go through bankruptcy, there may be no desire to ever use a credit card again. That is absolutely up to you. Using a credit card wisely however, may allow you to once again qualify for lower rates on a home mortgage or car loan when you are ready to make such large purchases.
Rebuilding your credit won't happen overnight. A series of good decisions including creating and sticking to a budget, establishing a savings account and reestablishing a credit history are all steps you can take toward a successful life after bankruptcy.
