Putting your life back together after bankruptcy – including your emotions and attitudes as well as your credit rating and finances – can be a genuinely daunting task. If you’ve recently filed for bankruptcy in Texas with the help of someone like a Houston or Dallas bankruptcy attorney – or if right now you are only considering bankruptcy – understand that it’s not the end of the world. With just a bit of patience and discipline, you can rebuild your life and reestablish your finances after a bankruptcy.
Bankruptcy gives a second chance to those who are facing overwhelming debts that they cannot possibly pay. In the long run, a bankruptcy can even be advantageous, but only for those who plan properly and dedicate themselves to taking advantage of the second chance that bankruptcy offers. A great deal depends on the steps you take after the bankruptcy process is complete. Listed and discussed here are five steps you should take after bankruptcy to protect yourself and your finances:
1. RELEASE THE GUILT AND SHAME
If you’ve declared bankruptcy, or if you’re thinking about it, you are not alone. More than 875,000 personal bankruptcies were filed in the United States in 2014, and more than 988,000 personal bankruptcies were filed in 2013. Although it’s a big number, many who file for bankruptcy experience guilt or shame. There’s really no need for that. Bankruptcy is frequently the most responsible thing someone can do, and beating yourself up about it doesn’t help. The wiser strategy is forgiving yourself for your mistakes and letting go of the past.
James Feazell has counseled plenty of bankruptcy filers as vice president of education at the National Foundation for Debt Management in Clearwater, Florida. “Sometimes things just happen,” he says. Feazell adds that unemployment, divorce, medical expenses, and other personal emergencies can push people into excessive debt and force them into bankruptcy. “So the challenge now is to adopt the right attitude,” says Feazell.
2. REAPPRAISE AND REEVALUATE
Chris Bridges, the owner of Vision Credit Services LLC in Washington, D.C., recommends some soul searching after a bankruptcy. “You really need to ask yourself several key questions,” Bridges says. “Your answers will help you create a better financial afterlife in the wake of bankruptcy.” It’s also important to have a shoulder to lean on, whether it’s friends, family, a faith community or any other group.
3. ADHERE TO A BUDGET AND PAY THE BILLS ON TIME
Vigilance regarding your finances is imperative after a bankruptcy. Even if you’ve never made or followed a budget, you’ll need to start. A budget can help you to manage your cash flow and can help to keep you from accumulating unnecessary debt. Establishing an emergency fund is also vital after declaring bankruptcy, since financial emergencies can overwhelm even the most flexible budgets.
Also after a bankruptcy, make it a priority to pay all of your bills on time. Set up automatic bill payments, and remember to pay your rent on time too. Rent payments are now being tracked by the credit bureau Experian, and late payments will negatively impact your credit score. Paying existing bills is the single most important thing you can do to restore your finances and your credit. If you can’t immediately pay everything that’s due, then you’ll need to prioritize your expenses. Pay the bills that are necessary for survival first, such as your food, housing, and utility payments.
4. OBTAIN A CREDIT CARD THAT HELPS YOU REBUILD CREDIT
Virtually everyone agrees that acquiring a secured credit card after a bankruptcy is one key to rebuilding your credit rating. 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 purchases each month and repaying your debts, you can gradually rebuild your credit. Chris Bridges at Vision Credit Services says, “Some of these cards will reward responsible borrowers by upping the limit without an additional deposit,” Bridges says.
There are a few things consumers should know about secured credit cards. At some banks, not everyone will qualify for a secured card, especially if your bankruptcy is recent. Also, don’t acquire any secured cards that charge high fees or that don’t report your payment history to the credit bureaus. Make sure that you do not repeat past mistakes – pay the full balance and don’t build up new debt.
5. GET THE TRUTH AND IGNORE THE MISCONCEPTIONS
Bankruptcy is the responsible step to take when it’s genuinely your best alternative, so ignore the myths and misconceptions about how horrible someone’s life can be after bankruptcy. Much of the information you get “on the street” or from uninformed friends is just plain wrong. Many people successfully and quickly bounce back from a bankruptcy. Some of the myths you might hear include:
- Bankruptcy will automatically disqualify you from getting a mortgage for at least ten years. That’s wrong. In fact, you can actually be in the middle of a Chapter 13 bankruptcy proceeding and still get approved for an FHA home loan.
- Getting a credit card will be next to impossible for at least seven years. That’s wrong too. One study showed that 96 percent of consumers were offered new credit within a year of filing for bankruptcy.
- Car dealers and lenders will only approve your application at sky-high interest rates. That’s not true either. Scores of automobile dealerships and lenders are willing to finance a vehicle or to approve a loan at a reasonable rate after a bankruptcy.
Yes, a bankruptcy can stay on your credit report for ten years, but it won’t take nearly that long to reestablish a positive credit rating. Chris Bridges at Vision Credit Services says, “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 twelve months.”
Bankruptcy is not for everyone. Texas consumers who are struggling with overwhelming debts may have other options, and it’s important to discuss those options as early as possible with a local bankruptcy lawyer – an experienced Houston or Dallas bankruptcy attorney, for example. If bankruptcy is the option you choose, you’ll find there’s not only life after bankruptcy – there can also be credit and prosperity for those who take full advantage of the benefits that bankruptcy can provide.