Get Your Life Back After Bankruptcy

Four Steps to Take After Bankruptcy to Improve Your Future

Filing bankrupt is not the end of the world. People file bankruptcy each day to resolve debt problems — they recover and so can you. Below are four steps that we believe can help you improve your finances, increase your credit score, and set you on the path to financial well-being.

Step One: Begin a Savings Plan

One financial goal for your future should be avoiding debt that you cannot pay back without placing yourself and your family’s financial future at risk. Having an “emergency” savings account can help prevent the need to borrow money or use credit cards if you experience a financial crisis. You cannot prevent some events from taking place, including unemployment, accidents, illnesses, and deaths, but you can do your best to prepare for these life events before they occur.

Some financial experts recommend an amount equal to three to six months of living expenses for your emergency savings account. However, at least one financial expert recommends an amount equal to eight to 12 months of living expenses. Finding another job or recovering from an illness can take longer than six months. By having a larger amount in your savings account, you might be able to avoid going into debt.

If you do not believe you can find the money to begin a savings account, Step Two can help. Remember, even a small amount can add up, and you can increase savings as your financial situation improves.

Step Two: Prepare and Live Within a Budget

Some people view a personal budget as a punishment or a way to deprive yourself of the things you desire. However, a household budget is one of the best ways of achieving your goals and having the things you desire. Setting up a budget and tracking expenses helps you identify “holes” or “leaks” in spending. As you see how you spend money, you can find ways to cut costs to avoid debt and increase savings.

When you begin, track all expenses, including your morning cup of coffee or your afternoon snack at work, to determine exactly how much you are spending in each category. While this may seem tedious, it is important to know where your money is going each month to prepare your budget correctly.

There are many online tools that you can use to make tracking expenses easy and quick.  Many of these tools can also help you prepare and stick to a budget. Websites you may want to research to determine if the tools can assist you with tracking expenses and creating a budget include Mint and Quicken.

Step Three: Check Your Credit Report

After your bankruptcy is complete, you need to check your credit report to ensure that all debts that have been discharged are reported correctly. Discharged debts should have a zero balance and should not be marked as delinquent. The credit report may note “discharged in bankruptcy” or have similar language for each discharged account.

If you discover errors on your credit report, you need to report these errors to each of the three credit reporting agencies and the creditor. Monitor the report to ensure that the errors are corrected. As a matter of practice, you need to review your credit report periodically for errors or mistakes. You are entitled to receive copies of your credit reports from each of the three major credit reporting agencies each year. Visit AnnualCreditReport for information on how to obtain your reports free of charge. Improving your credit rating and maintaining a good credit rating are important steps for your financial well-being.

Step Four: Improving Your Credit Rating

It is a common myth that anyone who files for bankruptcy relief will never have a good credit score again. This assumption is simply not true. In many cases, a person’s credit score begins to improve within a year of filing bankruptcy because the bankruptcy filing clears up some of the negative information on the person’s credit report. You can continue to improve your credit score by making all future secured credit payments on time and using credit wisely in the future.

Understanding how your credit score is calculated is another step toward improving your credit. Your FICO score is comprised of five elements — amounts owed, payment history, length of credit, new credit, and credit mix. Researching each of these areas can help you take the correct steps to improve your credit score. Incurring debt is not always a negative step; however, you must correctly handle debt to improve your financial well-being.

Are You Ready to Take the First Step?

If you have questions about the steps to take after bankruptcy, we can help. We want to help you overcome a financial crisis, including providing information about the steps you can take to secure a bright financial future.