Keep Your Docs
Be sure that you hold on to all of your bankruptcy documents for your records. If you lose them (as much as you may want to), it may be a long road to get copies. Creditors have been known to attempt to collect on debt that has been discharged in bankruptcy. Or you may need to use copies of your court documents to clear old debts on your credit report. Keeping your paperwork handy will save you a lot of grief in case a creditor harasses you, so be sure to find a safe place for your bankruptcy docs.
Check Your Credit Report
Few people realize that a person can rebuild their credit to a rating that’s considered “good” within a year of filing for bankruptcy. Start reviewing your credit report after a few months to give the credit agencies time to update your report. Check it to confirm that a list of your debts now reads “discharged in bankruptcy.”
If a debt on your report incorrectly shows as an outstanding bill, you can mail the credit reporting agency a copy of your discharge letter along with a list of your discharged debts. Also don’t forget that you can get one free copy of your credit report once a year. There are many reliable sources for a free report, including Quizzle.com.
Establish Your Budget
Whether or not overspending was a problem in the past, creating (and sticking to) a budget is one of the most effective steps to take to keep your finances in order in the future. To start, assess the total household income and your monthly expenses. Once your expenses are written out, identify the expenses that can be reduced or eliminated.
This includes taking a closer look at your non-dischargeable debts, such as student loans, some taxes and some medical bills. Calculate what your monthly payments will be and, if necessary, set up payment arrangements. Also, inquire about income-based repayment programs that may be available. If you need to make payment arrangements for your taxes, start with your state revenue department or your local tax authority prior to calling the IRS.
Change Your Habits
Changing your spending habits usually involves a shift in mindset as well as identifying the situations that tempt you to run up your credit cards and spend money. It may be smart to cut ties with companies and marketers that send you frequent email deals or mailers. Recognize the emotional cues that help you spend money, and create some simple habits that help you take control of your decision-making. For example, the next time you’re planning to hang out with friends, you may want to only withdraw a set amount of money in advance, so you don’t spend too much with your credit or debit card.
Another important part of changing habits is identifying your financial priorities, then reducing your “fun” or frivolous spending to 10% of your budget or less. This step will also help you decide how to spend your windfall funds, such as tax return money.
Rebuild Your Credit
Avoid the solicitations from the dozens of “credit repair” companies, and rather focus on systematically rebuilding your credit over time. This includes obtaining a secured credit card, which uses money deposited in the bank as collateral for the credit. Some creditors offer secured cards that are easy to obtain and don’t require a credit check.
Don’t get multiple cards; one should be enough to spot you when you need it. A good rule of thumb is to remember to use no more than 20% of the credit available on your card. For instance, if you have a credit limit of $500, avoid letting your balance get higher than $100.
Building your FICO score is a key aspect of repairing your credit. Your FICO score is the number that the three credit bureaus, Experian, TransUnion and Equifax, use to determine your credit risk. About 35% of your FICO score is based on paying your bills on time; thus paying on time should be your primary focus. Establishing auto pay and accounts to pay electronically are sure to help boost your credit.
Create a Savings Strategy
Get into the habit of paying yourself first every payday! You can do this by setting aside a few dollars in an emergency savings account. Again, setting up a recurring bank transfer or setting up transfers through your employer’s human resource department are the best sure-fire ways to stay on track every month. We all know that rainy days come when we have to pay for incidentals, and the question is how much to set aside to cover these expenses. No amount is too small! Remember that small amounts add up in the long run.
Know that bankruptcy doesn’t mean your financial life is ruined. You CAN bounce back and rebuild your credit and finances. If you have any questions before or after filing for bunkruptcy, consult a bankruptcy attorney. You can also learn more about the bankruptcy process by clicking here.
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