After Bankruptcy
Bankruptcy is not about witnessing your permanent financial ruin through your own eyes. Bankruptcy is about getting a fresh start. Yes, it will take time and persistent effort but you can rebuild your financial life in a matter of 2-3 years after bankruptcy. There are a number of things you can do to cushion the impact of bankruptcy. None of these steps will provide a magic solution to all your financial troubles. You will have to follow a step by step approach to rebuild your credit. You must focus not on your credit history, but on your financial present.
Let us begin from the beginning. When you were in the bankruptcy court, you may have bumped into a few people who had filed for bankruptcy more than once. Yes, that’s true. Many people file for bankruptcy more than once. A question may have troubled you – how can these people get enough credit again to get them into this much debt that they are again filing for bankruptcy Well, anyone can start getting credit once again after bankruptcy but you must know how and at what cost Here, a warning becomes necessary! Never ever think of emulating repeat bankrupts!! At first glance, you may be tempted to view people who file for bankruptcy more than once as those who have learned the art of beating the system. You may think that these people just run up big bills and then simply walk away.
Well, get real and don’t fool yourself for these multiple bankrupts are certainly fooling themselves and defeating themselves badly. Remember there is a minimum time-period that must elapse before anyone can re-file for bankruptcy. According to 2005 bankruptcy law, eight years must elapse before you can re-file for Chapter 7 bankruptcy. You will have to wait for at least 4 years if you want to file a Chapter 13 after Chapter 7. Two years is the minimum time that must elapse going from one Chapter 13 to another. This means these multiple bankrupts have paid big bucks towards high interest payment during the time they were prohibited by law from filing another bankruptcy. Also, it is suicidal to file for Chapter 7 bankruptcy if you have significant assets to protect, say home equity or savings. So these folks who go broke repeatedly are taking out a great deal of money from there pocket but are not building any wealth over time. This is no way to live if you want to live a decent life.
Rebuilding credit after bankruptcy
Bankruptcy should never be viewed as an opportunity to get rid of all your previous debt so that you may start thinking of taking new debt. Bankruptcy should always be used as a wake up call to find out what exactly went wrong with your finance that they got messed up so badly, and then taking steps to fix that problem quickly.
• A careful analysis may tell you that you went broke because of overspending. This means the very first thing you are supposed to do after bankruptcy is to first create and then faithfully stick to a budget.
• If you went broke because you didn’t had enough savings to meet an unexpected situation such as a job loss, start off by establishing an emergency fund.
• If you went bankrupt paying medical bills, try to find a job which provides medical insurance coverage or check with your state authorities if such coverage is offered by your state.
The first step to start rebuilding your credit as well as your credit score is to get your credit report cleaned up. Many of your accounts may have been closed and their obligations wiped out as part of your bankruptcy, but your credit report can still be showing several of these accounts as open and overdue. If that the case, contact the credit bureaus immediately and ask them to report all such closed accounts as “included in bankruptcy.” Make this a general rule – if you find any discrepancy or error in your credit report, ask the bureaus to rectify them. After all the information in your credit report determine your credit score and lenders use this credit score to judge your credit worthiness. So a few errors in your report and your credit score may suffer a big blow.
Next step – get a secured credit card
If you are a recent bankrupt, it is highly unlikely that you will qualify for an unsecured i.e. regular credit card. But don’t worry; simply get a secured credit card. A secured credit card means that your credit limit will be equal to an amount that you deposit at the issuing bank. Usually, these limits can be as low as $200 to $500, which looks ridiculously low when compared to the credit card limits you enjoyed before bankruptcy. But mind you, you are not looking to go on a spending spree; you are trying to quickly rebuild your credit. Therefore, don’t completely spend even this small credit limit because maxing out your credit card will be bad for your credit score. Decide that you will not use more than 40% of your credit limit and will pay off the balance in full each month. When trying to rebuild credit, light, regular use of the credit card is the key. Choose a secured credit card which charges low application fee and reasonable annual fee. Plus, get a secured credit card only after you are absolutely sure that the card issuer will regularly report your payment history to all the three major credit bureaus – Equifax, Experian and TransUnion. That is the only way to get your credit score up.
Getting an installment loan
Getting an installment loan and then paying it on time will also does your credit score a whole lot of good. You may qualify for a very high interest rate loan in as little as six months after bankruptcy. But it’s always better to wait until you can qualify for an FHA loan. This will take about two years after closing of your bankruptcy case. The biggest plus point of FHA loans are that their interest rate is only half a percentage point higher than regular mortgage rates. Just make sure that you can timely repay the loan before applying for one. You are trying to rebuild your credit, not to give it another body blow.
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