How to Recover from Bankruptcy
Perform a financial self-evaluation., Establish a monthly budget., Pay your bills on time., Monitor your credit score., Develop a plan to live within your means., Dispute inaccuracies on your credit report., Start with a cell phone plan., Apply for...
Step-by-Step Guide
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Step 1: Perform a financial self-evaluation.
Ask yourself what led to you having to file for bankruptcy.
While there may be a number of variables involved, you likely also formed some poor spending or borrowing habits.
It’s important that you identify these issues and take responsibility for poor choices you’ve made in order to ensure you don’t repeat them.Make a list of two or three things you think led to you having to file for bankruptcy and commit yourself to not repeating those same mistakes. -
Step 2: Establish a monthly budget.
It’s important that you go over your income and expenses and establish a sound monthly budget that you can stick to.
Your budget will allow you to keep track of your bills and stay aware of how much disposable income you have each month.Make a list of your monthly expenses and compare it to your income to create a working budget.
Incorporate unforeseeable expenses into your budget to avoid getting in over your head again in the future.
Figure out how much you can put into a savings account each month, which can help prevent you over-extending your finances in the future. , After filing for bankruptcy, it is important that you demonstrate your ability to make monthly payments in full and on time.
Make paying your existing bills on time a priority each month to ensure nothing else contributes to lowering your credit score.Use your budget as a guide to help you pay your bills on time.
Making your payments on time will not have a dramatically positive effect on your credit score immediately, but missing them can dramatically reduce your score.
Consider setting up automatic payments through your bank ensure you never miss another payment. , If you have room in your budget, you may want to sign up for a credit monitoring service to ensure that you stay on top of things being reported to the credit bureaus.
Some banks offer credit monitoring services but you can also go through websites like CreditKarma.com or FreeCreditReport.com.You may have inaccurate or erroneous information reported to your credit report that you may not otherwise be aware of without monitoring your report.
Monitoring your credit score can help you understand when to take the next step toward improving your credit score by applying for news lines of credit.
Keep in mind that filing for Chapter 7 bankruptcy will stay on your credit report for 10 years and Chapter 13 will fall off after seven years. , You may have gotten into trouble because you failed to distinguish between your wants and needs.
You can do this while developing your budget, and look at your different spending categories, separating them out into wants and needs.
Food, for instance, is a necessary expense.
Dining out, however, is an unnecessary expense, as are things like going to the movies, a new television, a designer wardrobe, and so on.
Look at the things you currently view as essentials an reevaluate whether or not they are really necessary. , As you monitor your credit report, you may notice things that don’t seem right.
In the event a company submits inaccurate or erroneous information to your credit report, you have the right to dispute it and have it removed from the report.Debts that have been expunged in your bankruptcy filing should not appear on your credit report as separate items, since the bankruptcy covers them.
If you notice these debts on your report, you request to have them removed.
Write a letter to the credit bureau with the inaccurate information that was reported, as well as why you believe it to be inaccurate.
Request to have the information corrected or completely removed if it cannot be substantiated.
You can find contact information for all three credit bureaus here: http://www.myfico.com/CreditEducation/Questions/Error-On-Credit-Report.aspx Avoid “credit repair” services that promise to have items removed from your credit report for a fee.
No business can remove accurate items from your credit report. , If you are unable to apply for a new line of credit but want to begin rebuilding your credit history, you may want to begin by applying for a cell phone.
Cell phone plans provide you with a means to demonstrate your ability to make monthly payments on time and in full.Remember that if you fail to pay your cell phone bill your carrier may report that failure to your credit report.
Make sure there is room for a cell phone bill in your budget before signing a contract. , Secured credit cards work differently from traditional credit cards.
You provide the bank with a security deposit for your line of credit.
This can be your savings account or you may need to provide them with a specific deposit the bank will keep.
The bank will then extend a line of credit to you for the amount you secured.
In the event you fail to make a payment on your card, the bank will take the money from the deposit you provided.Secured credit cards are designed for people with bad credit that are working to improve it, so they are an excellent choice for those rebounding from bankruptcy.
Making these payments must be a first priority, as making late payment or missing them entirely will further reduce your credit score. , After making reliable payments on a secured credit card for a year or two, your credit may have improved enough to apply for an unsecured credit card.
Some lenders may offer cards with high interest fees, but others will treat your bankruptcy as a clean slate and offer you better terms.
See if you can find an unsecured card with reasonable interest rates.
Banks will often charge an annual fee for the use of their cards to help the limit financial liability in the event you default on the credit card.
Unlike a secured credit card, you will not be required to provide a security deposit for a high interest credit card. , People who are rebounding from bankruptcy are often vulnerable to predatory lenders like payroll loans, car title lenders, and retailers that offer “rent-to-own” options.
These companies offer credit to those with bad credit scores and may be tempting, but often offer extremely high interest rates that can lead to paying exorbitant prices for products or finding yourself unable to make the required payments.Predatory lenders have been known to charge interest rates as high as 625%! , As you improve your credit, you may choose to apply for more credit cards that offer higher limits and fewer annual fees.
Make sure you stay on top of credit card payments to avoid falling back into debt.
Your credit score is affected by your current available credit, so keep your credit balances low to maintain a good credit score.Your credit score may lower as a result of maxing out your credit cards, as your level of available credit will be reduced.
Try treating your credit cards like 30-day loans and repay anything you charge within a month.
Credit balances above 30% of your available credit will have negative effect on your credit score. , Your budget has gotten you this far, so make sure to stick with it once your credit improves.
Use your budget to keep track of your finances and ensure you stay on top of your bills to prevent yourself from falling back into the habits that led to filing for bankruptcy.It can take years to repair your credit score, so stick to your budget and don’t undo your hard work by relapsing into bad habits.
You can always adjust your budget as things change, but don’t disregard it. , It can take years for your credit to recover from bankruptcy, but it’s absolutely possible.
Based on the type of bankruptcy you filed for, your bankruptcy will fall off of your credit report after seven to ten years, so if you can maintain good spending practices throughout that time, your score can become great eventually.Lenders look at payment history, so having years of consistent payments on accounts will show your reliability.
A long credit history will improve your credit score, allowing you to qualify for lower interest rates on your loans and credit cards. -
Step 3: Pay your bills on time.
-
Step 4: Monitor your credit score.
-
Step 5: Develop a plan to live within your means.
-
Step 6: Dispute inaccuracies on your credit report.
-
Step 7: Start with a cell phone plan.
-
Step 8: Apply for a secured credit card.
-
Step 9: Apply for an unsecured credit card.
-
Step 10: Avoid predatory lenders.
-
Step 11: Pay off your credit card balances each month.
-
Step 12: Stick to your budget.
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Step 13: Develop a long credit history.
Detailed Guide
Ask yourself what led to you having to file for bankruptcy.
While there may be a number of variables involved, you likely also formed some poor spending or borrowing habits.
It’s important that you identify these issues and take responsibility for poor choices you’ve made in order to ensure you don’t repeat them.Make a list of two or three things you think led to you having to file for bankruptcy and commit yourself to not repeating those same mistakes.
It’s important that you go over your income and expenses and establish a sound monthly budget that you can stick to.
Your budget will allow you to keep track of your bills and stay aware of how much disposable income you have each month.Make a list of your monthly expenses and compare it to your income to create a working budget.
Incorporate unforeseeable expenses into your budget to avoid getting in over your head again in the future.
Figure out how much you can put into a savings account each month, which can help prevent you over-extending your finances in the future. , After filing for bankruptcy, it is important that you demonstrate your ability to make monthly payments in full and on time.
Make paying your existing bills on time a priority each month to ensure nothing else contributes to lowering your credit score.Use your budget as a guide to help you pay your bills on time.
Making your payments on time will not have a dramatically positive effect on your credit score immediately, but missing them can dramatically reduce your score.
Consider setting up automatic payments through your bank ensure you never miss another payment. , If you have room in your budget, you may want to sign up for a credit monitoring service to ensure that you stay on top of things being reported to the credit bureaus.
Some banks offer credit monitoring services but you can also go through websites like CreditKarma.com or FreeCreditReport.com.You may have inaccurate or erroneous information reported to your credit report that you may not otherwise be aware of without monitoring your report.
Monitoring your credit score can help you understand when to take the next step toward improving your credit score by applying for news lines of credit.
Keep in mind that filing for Chapter 7 bankruptcy will stay on your credit report for 10 years and Chapter 13 will fall off after seven years. , You may have gotten into trouble because you failed to distinguish between your wants and needs.
You can do this while developing your budget, and look at your different spending categories, separating them out into wants and needs.
Food, for instance, is a necessary expense.
Dining out, however, is an unnecessary expense, as are things like going to the movies, a new television, a designer wardrobe, and so on.
Look at the things you currently view as essentials an reevaluate whether or not they are really necessary. , As you monitor your credit report, you may notice things that don’t seem right.
In the event a company submits inaccurate or erroneous information to your credit report, you have the right to dispute it and have it removed from the report.Debts that have been expunged in your bankruptcy filing should not appear on your credit report as separate items, since the bankruptcy covers them.
If you notice these debts on your report, you request to have them removed.
Write a letter to the credit bureau with the inaccurate information that was reported, as well as why you believe it to be inaccurate.
Request to have the information corrected or completely removed if it cannot be substantiated.
You can find contact information for all three credit bureaus here: http://www.myfico.com/CreditEducation/Questions/Error-On-Credit-Report.aspx Avoid “credit repair” services that promise to have items removed from your credit report for a fee.
No business can remove accurate items from your credit report. , If you are unable to apply for a new line of credit but want to begin rebuilding your credit history, you may want to begin by applying for a cell phone.
Cell phone plans provide you with a means to demonstrate your ability to make monthly payments on time and in full.Remember that if you fail to pay your cell phone bill your carrier may report that failure to your credit report.
Make sure there is room for a cell phone bill in your budget before signing a contract. , Secured credit cards work differently from traditional credit cards.
You provide the bank with a security deposit for your line of credit.
This can be your savings account or you may need to provide them with a specific deposit the bank will keep.
The bank will then extend a line of credit to you for the amount you secured.
In the event you fail to make a payment on your card, the bank will take the money from the deposit you provided.Secured credit cards are designed for people with bad credit that are working to improve it, so they are an excellent choice for those rebounding from bankruptcy.
Making these payments must be a first priority, as making late payment or missing them entirely will further reduce your credit score. , After making reliable payments on a secured credit card for a year or two, your credit may have improved enough to apply for an unsecured credit card.
Some lenders may offer cards with high interest fees, but others will treat your bankruptcy as a clean slate and offer you better terms.
See if you can find an unsecured card with reasonable interest rates.
Banks will often charge an annual fee for the use of their cards to help the limit financial liability in the event you default on the credit card.
Unlike a secured credit card, you will not be required to provide a security deposit for a high interest credit card. , People who are rebounding from bankruptcy are often vulnerable to predatory lenders like payroll loans, car title lenders, and retailers that offer “rent-to-own” options.
These companies offer credit to those with bad credit scores and may be tempting, but often offer extremely high interest rates that can lead to paying exorbitant prices for products or finding yourself unable to make the required payments.Predatory lenders have been known to charge interest rates as high as 625%! , As you improve your credit, you may choose to apply for more credit cards that offer higher limits and fewer annual fees.
Make sure you stay on top of credit card payments to avoid falling back into debt.
Your credit score is affected by your current available credit, so keep your credit balances low to maintain a good credit score.Your credit score may lower as a result of maxing out your credit cards, as your level of available credit will be reduced.
Try treating your credit cards like 30-day loans and repay anything you charge within a month.
Credit balances above 30% of your available credit will have negative effect on your credit score. , Your budget has gotten you this far, so make sure to stick with it once your credit improves.
Use your budget to keep track of your finances and ensure you stay on top of your bills to prevent yourself from falling back into the habits that led to filing for bankruptcy.It can take years to repair your credit score, so stick to your budget and don’t undo your hard work by relapsing into bad habits.
You can always adjust your budget as things change, but don’t disregard it. , It can take years for your credit to recover from bankruptcy, but it’s absolutely possible.
Based on the type of bankruptcy you filed for, your bankruptcy will fall off of your credit report after seven to ten years, so if you can maintain good spending practices throughout that time, your score can become great eventually.Lenders look at payment history, so having years of consistent payments on accounts will show your reliability.
A long credit history will improve your credit score, allowing you to qualify for lower interest rates on your loans and credit cards.
About the Author
Amber Moore
Committed to making crafts accessible and understandable for everyone.
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