A Chapter 7 bankruptcy clears most of your debt and allows you to reset your finances. Without careful attention, however, it’s possible to get back to the same position you were in when you needed to file for bankruptcy. Instead, make sure you take the right steps after your bankruptcy has been discharged to reset your finances and protect yourself from getting back to the same spot you were in when you needed help. Use the following steps to start rebuilding your credit so you can move on from the bankruptcy.
Preserve Paperwork from Your Case
Create a file somewhere to keep all of the bankruptcy paperwork from your attorney. This should include the original petition, the notice of filing, and the discharge paperwork. The bankruptcy petition has all of the detailed information for your bankruptcy and the discharge paperwork shows exactly what happened during your bankruptcy. If possible, store a copy in your home as well as online so you can access the paperwork if needed. Your paperwork may be needed if you apply for new credit or a loan as well as just in case a creditor tries to collect on a debt that was already handled in the bankruptcy.
Create a New Budget for Your Finances
Start thinking about a new budget immediately. It’s important to think about what went wrong before the bankruptcy and what needs to be changed to avoid getting in the same position again. Consider fixed, variable, and irregular expenses when creating a budget to ensure everything is included. Make sure the budget includes a plan for creating an emergency savings fund. Carefully consider categories where you are likely to overspend, such as gifts for others or variable expenses like entertainment. While it’s a good idea to pare down these expenses as much as possible, at least for a while, make sure you are realistic about what you can and can’t spend in these categories. You want to make sure you create a budget you can stick with.
Start Saving for an Emergency Fund
When you create a budget, make sure you earmark some of your income for an emergency fund. This money is designed to help you whenever an emergency arises that you cannot cover with your income at the time. It’s important to have at least a few month’s of expenses in your emergency fund so you can cover your regular bills if you are unable to work. Make sure you automate this so money moves into your savings account as soon as your income is deposited so the money set aside for your emergency fund makes it to your savings account. Prioritize this over other investments for at least the first year so you can have the money you need if you have an emergency happen.
Make Sure All Bills are Paid on Time
After a percentage of your money has gone to your savings account, pay all of your bills. Bills that are paid late can not only rack up late charges but can impact your credit score as well. Set aside an afternoon to sit down and pay all of your bills or have them automatically withdrawn from your checking account to ensure they’re paid on time. This will enable you to make sure the necessary bills are paid before any other expenses, like gifts or entertainment, so you can be sure your budget will allow for those other expenses during the month. Keep an eye on bills that may be paid every 6 months or once a year to ensure you don’t forget about these bills when they are due.
Check Your Credit Score Regularly
Make sure you are checking your credit report on a regular basis. After around three months, pull your credit report to check and make sure there are no errors from your bankruptcy. Mistakes can happen, so if you see anything that is wrong, contact the credit bureaus to start the process of removing errors from your credit report. You can get a copy of your credit report from the major credit bureaus for free once a month without it impacting your credit score.
Start Rebuilding Your Credit
As your finances start getting back to normal and you’re getting used to your new budget, it may be time to start thinking about rebuilding your credit. While a credit card is chosen more often as a way to rebuild credit, there are other ways to do this as well. Some companies will report whether your bills are paid on time to the credit bureaus, so simply making timely payments can be helpful. It might also be a good idea to be added as an authorized user to a family member’s credit card as this gives you access to credit without needing to apply on your own.
Look into Getting a Credit Card or Loan
A credit card may be the easiest way to boost your credit, but it can also destroy your credit and get you back in the same position again. Once you’ve saved up an emergency fund, you may want to go ahead and get a credit card with a small limit. Make sure you’re using the credit card properly and paying it in full at the end of every month. It’s best to just use the credit card for one recurring payment and have it paid off immediately. This helps build your credit without the risk of overspending or interest accumulation.
It can seem like getting your finances back in order and repairing your credit will take a long time. However, there are steps you can take once your bankruptcy has been discharged to help build your credit faster and help you move on with your life. Follow the steps here to get a good start on rebuilding your finances and making sure your finances are where they should be just in case something happens in the future. With an emergency fund and a budget in place, you can move on with your life faster than you might have thought.