How To Start Over After Filing for Bankruptcy
Written by
Bob Haegele
Edited by
Katie Wudel
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If you’ve declared bankruptcy recently, you may not know what your next steps are. Bankruptcy itself can be a long and drawn-out process, and might leave you feeling fatigued. Nevertheless, you must press on, and following these steps will help you begin the rebuilding process after bankruptcy.
After all, bankruptcy is not the end; think of it as a fresh start. It will take time to rebuild your credit, but forming good habits will help you move forward and recover so you can secure the financing you need in the future. In doing so, consider these tips on starting over after bankruptcy.
1. Save All Paperwork From Your Bankruptcy Settlement
The first step you should take when starting over after bankruptcy is to get organized. Whether you save the paperwork digitally or maintain physical copies, you’ll need to have a record of the settlement.
Having details on hand about the settlement any debts that may have been included will be extremely important. Further down the road, you may be asked for this information when applying for credit, such as a mortgage. A debt collector may also call asking for information, so you’ll want to keep it handy.
2. Create an Emergency Fund and a Budget
Covering the personal finance basics is always important, but it’s arguably more important when starting over after bankruptcy. If you already have one or both of these things in place, now is the perfect time to review them.
The first step is to have an emergency fund in place. If you don’t, you can use a high-yield savings account to both earn some interest and separate it from your bank account, which can make you less tempted to access it outside of a true emergency. The next step is to be sure to have a budget. You can use a budgeting app or software to keep you on track, or you can use a budgeting method such as the 50/30/20 rule.
3. Check your credit report
The next step is to get acclimated with your credit report. Initially, you’ll want to be sure the debt included in your bankruptcy is on the report(s), as the bankruptcy is meant to lessen your debt burden. If it’s still on your report, they will think you have more outstanding debt than you actually do, which can hurt your credit.
In addition, you should continue to monitor you credit report on an ongoing basis. As you pay off more debt and make payments on your credit cards, you’ll want to be sure those are reflected in your credit report. If they aren’t, it may be worth disputing the report with the agency that maintains it. Keep in mind, though — you can only request a full credit report for free once per year from AnnualCreditReport.com for each of the three credit reporting agencies.
4. Build (or Rebuild) Good Credit
Once you have the basics covered, it’s time to start establishing good credit again. Those steps are largely the same as they would be with or without a bankruptcy declaration. Read on for four tips on how to do this.
Make Payments on time
When it comes to building your credit, avoiding late payments is one of the most important steps. Your credit score attempts to gauge how likely you are to repay your debt, so making on-time payments is the best way to show you’re likely to do so.
Just like when applying for a job, past performance is the best indication of future performance. Make payments on time, and set up auto-pay if necessary to avoid missing one.
Use a Secured Credit Card
After declaring bankruptcy, lenders may not see you as being very creditworthy, and that can make it difficult to get approved for most credit cards. With a secured credit card, you put down your own money as collateral, which will act as your credit limit. Because the card issuer can’t lose money in this arrangement, they’ll be willing to issue you one even if your credit isn’t in good shape. Just be sure to use this card responsibly and make on-time payments as you would any other credit card.
Keep Credit Utilization Low
Keeping credit utilization low is also an important step in building your credit. Credit utilization is simply your total outstanding debt divided by the limit for each line of credit. For example, if you have a credit card with a $5,000 limit and a $500 outstanding balance, your utilization is 10%. There’s no hard-and-fast rule for what your credit utilization should be, but the rule of thumb is to keep it under 30%.
One of the main factors in determining your credit limit when you apply for a credit card is your income. Given how much you make, credit card issuers expect you to be able to use the credit limit they give you responsibly. Thus, if your credit limit keeps increasing, it may be seen as a red flag.
Add Utility Payments to Your Credit Report
When you are rebuilding after bankruptcy, you want everything on your credit report that shows you can consistently make payments on time. Because utilities have to be paid every month, adding them to your credit report can show that you have no problem making your payments. You will have to contact your utility directly to ask if they can report that information to credit reporting agencies. You can also set up auto-pay with your utility so it’s even easier to make your payments consistently.
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