Assessing Your Finances
The first step to improving your financial situation is knowing where you’re starting from. Obtain your credit reports from the three credit reporting agencies (Experian, TransUnion, and Equifax) and make sure they are all correct. If you find any discrepancies, it’s important to clear them up as soon as possible. Next, sit down and make a realistic, clear-eyed budget. This will give you the information you need to take the next steps. Finally, put together at least a small amount of savings in case of emergency. At this point in the recovery process, it’s important that an unexpected expense is not allowed to put you in debt that could spin out of control
Special Considerations for Chapter 13
Chapter 13 bankruptcies have some features that make them different from Chapter 7 filings, both to consumers and credit reporting agencies. In Chapter 13, you’ll have likely held on to real assets such as land, homes, and cars. This means that you will come out of bankruptcy with assets that can be used as collateral, and creditors know that. Beware of “credit recovery firms” that offer to fix your financial problems. They are usually a scam, preying on people who are recovering from a difficult financial time.
Another thing to be aware of after Chapter 13 is reaffirmed debt. Your repayment plan may have included debts that you agreed to pay normally in spite of your bankruptcy. If this is the case, you’ll still have those payments until they’re fully paid off, as they are not discharged at the end of your bankruptcy.
Chapter 13 is a longer process than Chapter 7 bankruptcy, and credit scores begin to rebound after the date of filing, not the date of discharge. This means you’re likely to see a higher score coming out of bankruptcy with this type of filing.
Steps To Rebuilding
Now you’re ready to make a plan to rebuild your credit score. This process can take a long time, several years in fact, but don’t get discouraged or impatient. It’s far from impossible, and taking the following steps will help get you there.
Secured Credit Cards
A secured credit card functions like a normal credit card, except that it requires a deposit in the amount of the credit limit in a savings account with the issuing bank. Because this minimizes the risk to the bank, the interest rate is typically low. Payments are reported to the credit rating agencies, so they’ll raise your credit score. Because of this. though, any missed payments will affect your score negatively.
After your credit has begun to look better, you’ll want to apply for an unsecured loan or card. Keep an eye on interest rates and required monthly payments though. Your score will likely be on the lower end still, so rates are likely to be high. Don’t let fees and interest eat into your budget and damage your overall financial recovery.
With hard work and diligence, it’s common for people to see their credit fully recovered within three or four years. It takes patience, but bouncing back from bankruptcy is a goal that’s within anyone’s reach.