You filed the papers, paid your lawyer fees, and made it to your court date. You’ve officially declared bankruptcy. So what do you do now? Depending on whether you filed chapter 7 or chapter 13, you have a few different options. Under chapter 13 bankruptcy you will be paying off some of your debt and living on an obviously smaller budget that you mush stick to. While your “reorganization” period will be anywhere from three to five years, the bankruptcy declaration will stay on your report for an additional five to seven years afterwards. If you went the chapter 7 route you walked away from a majority of your debt but you too are currently living an embellishment free lifestyle.
Either way you are seen as a huge credit risk and any creditor you do find willing to supply you with an emergency card will surely do so at extreme interest rates and with plenty of penalizing fees. Here are some words of advice on how to live life post-bankruptcy.
First things first, the number one variable to get used to is the fact that you now must start living on cash. Whether it was just misfortunes in the past or a reliance on your credit that got you in trouble in the first place, you probably won’t qualify for any major amount of credit for many years to come and should get used to living on what is physically in your pockets. In response to this lack of emergency funds, its time you set up your own stash of cash to use only in the event of a car break down, sudden doctor’s visit, or any other sudden expense you think you might incur.
Strange as it may be, the next thing you want to do is get a credit card. Though this may prove to be easier said than done because, again, you probably won’t qualify for many creditor’s plans. But take what you can get and use it as sparingly as possible. The key to this is to pay it of EVERY month, the goal being to help rebuild your credit so you will eventually once again (or possibly for the first time) have a decent credit score.
Typically six months after filing bankruptcy you can start shopping around for a lender. Keep in mind that a secured lender will probably give you a better interest rate than an unsecured one and you can get your deposit back upon closing the account. One thing to watch out for in secured lenders however is to find one that reports to at least one credit bureau. After all you want to show off you “role model borrowing” skills to prove that you’ve learned from past mistakes. Usually within a year of consistently paying off your secured card you will qualify for an unsecured one but in either case prepare yourself for the shock of APRs ranging from around 17% on up through the low 20’s.
While carrying a credit card again can be a double-edged sword for you, it could be for the lenders too. Paying off the card every month ensures that they don’t get to exercise those out of sight interest rates they are imposing on you.
Declaring bankruptcy could also have some serious side effects to watch out for. For instance credit is one factor that many insurance companies use when pricing their policies and a bankruptcy on the books could most definitely impact your rates. Filing under chapter 13 bankruptcy could cost you a good chunk of your luxurious lifestyle; such as if you have kids in private schools, courts will most likely make you put them in the public system.
In cases of hiring employees and promotions, when two equally qualified candidates are being considered a credit scrutiny may be what it comes down to. In which case make sure if the reason for your bankruptcy was a divorce, failed business, or sick child, you have the opportunity to note that in 100 words or less. Though this won’t help your credit score it may save you in some such situation.
Just keep in mind, the worst of your bankruptcy is over and it’s all just a recovery process from here. Work hard to rebuild that credit and as soon as it’s off your report you’ll be good as new.
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Nathan Dawson writes for www.mybankruptcycounseling.com a great online source for finance information regarding bankruptcy laws, alternatives and support.
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