How to Rebuild After Bankruptcy
Bankruptcy is a difficult process to go through even though it offers people a fresh start. It also forces the individual, or couple, to start with little in the way of assets since all nonexempt property has to be sold in a Chapter 7 filing. When the rebuilding should start depends on whether the bankruptcy was a Chapter 7, where the debt does not have to be repaid, or Chapter 13, where some of the debt is repaid through a structured plan for five years. In either case as soon as the bankruptcy is discharged it's time to start rebuilding.
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Instructions
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Pay all your bills on time and in full. Eventually, after a year or two your credit report will start to improve. The bankruptcy will remain for up to 10 years on the report but at least potential employers, landlords and insurance providers will see that since the bankruptcy you're current with all of your bills.
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Develop a budget. List all your expenses on paper and total them. Don't forget to include those you pay only quarterly or once per year. Include an amount for unexpected expenses such as dental and medical services, home maintenance and car repair. Keep track of your cash expenses. It's simple to go the ATM, withdraw $50 and then forget what you've spent it on.
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Subtract the expenses from your total income. That tells you how much money you have left over every month. Unless that amount is significant, you're going to have to start cutting expenses. Go over your list and start circling any expenses that you can cut without affecting your lifestyle too much. For example, check out movies from the library for free instead of renting them. Make gourmet coffees yourself instead of buying them. Total those expenses. Go through the list one more time and decide which expenses can be reduced. For example, utilities can be reduced by setting the air conditioner at 80 degrees rather than 75 degrees, or your grocery bill can be decreased by shopping sales and using coupons.
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Open a savings account and deposit the money you've saved. One way to insure that you save the money is to make the deposit in the beginning of the month, rather than waiting until the end of the month to deposit whatever is leftover. In other words pay yourself first.
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Apply for a secured credit card only to use for emergencies. You may be tempted by credit card offers now that your bankruptcy has been discharged. Lenders know that you can't declare bankruptcy again for at least seven years. The interest rate on those cards will be higher than a secured card. You need a credit card to rent a car, hotel room or for when you don't have access to your savings.
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Save at least three months' worth of living expenses. That protects you in case something happens to your job or your ability to work. It provides a cushion in case a major unexpected repair comes up that is more than your secured credit card will cover.
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Apply for store credit or a gas card. Your local big box store or department store may be more willing to provide a credit card -- for use in their store only -- than a bank will be. Use it for necessities only. Pay off the card balance every month.
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Apply for an unsecured credit card when you're reasonably sure you'll be approved. Inquiries show up on your credit report. Too many within a short period of time decreases your score.
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Tips & Warnings
Ask the credit card lender if it reports to the three credit bureaus. You want your good track record to be noticed. If the bank or credit union doesn't report, find another lender.
Keep your chin up. It will take several years to improve your credit score but you can do it.
Consider the upfront fees with both secured and unsecured credit cards. They can be high.
