It's a common misconception that filing for bankruptcy is near impossible to recover from; this mindset can sink any chance of starting over.
There is a large amount of misinformation associated with a bankruptcy maneuver, and all of it can be extremely damaging to the idea that filing for bankruptcy is a fresh start for the debtor. The reality of the situation is that with the right personal, financial and credit management, and a positive outlook, you can start fresh with a new lease on life.
Part of starting over is putting the past behind you, and when the past includes a great amount of personal debt and distress, this is a hugely positive step forward. Bankruptcy, despite what you may have heard, isn't a death sentence, and when managed right, can get you moving forward instead of dwelling on past mistakes.
A common misconception about credit recovery is that you'll get denied for an unsecured credit card or loan immediately after filing for bankruptcy. In fact, you can and should try to get a credit card, especially if you filed Chapter 7.
Creditors know that Chapter 7 filers will be unable to file again for 8 years, so they actually see applicants in the wake of Chapter 7 bankruptcy as reasonably trustworthy. Your credit limit won't be high, but having an unsecured card after bankruptcy is a good way to start building credit.
If you can't get an unsecured credit card immediately after a bankruptcy filing, don't worry. You can use your savings as collateral and get a secured card, from which you can build credit by paying the balance every month.
It can be deflating to rebuild your credit after bankruptcy, especially if your credit score was reasonable before you filed. This may seem like a mountain to climb in the process of rebuilding your financial security.
Something to remember about re-establish a strong credit standing: it won't happen overnight, but it will be worth it. If you don't start on the road to better credit immediately after filing for bankruptcy, it may delay your ability to finance a car or get a home loan, things that a financially healthy person can do.
Make sure you stay up to date on your payments, whether they're for past or present debts. This tells future creditors that you're now a more trustworthy borrower, and builds a record of proof in a positive direction. To ensure that you won't miss a payment, use tools like automatic payment methods.
In addition, make sure to clean up inaccuracies on your credit report that might discourage lenders after bankruptcy. There is a petition process to challenge erroneous and outdated information on your credit report. If these things remain on the record, it will almost certainly have a negative effect on your ability to acquire new credit.
Financial repair after bankruptcy requires being in good standing with a bank. If a bankruptcy filing is the only negative mark on your record, you'll usually be allowed to open a new account, but if your previous relationship with one or more banks is negative, you may have a harder time. If your record shows that you had accounts closed for frequent overdrafts with an inconsistent record of paying back bank debts, for example, you may be denied the ability to open a new account.
If you have a troubled financial history and can't open a new account with a reputable bank, you can still rebuild your financial security with pre-paid debit cards that demonstrate that you're a good faith borrower.
It's important to remain under a manageable budget following your bankruptcy. If you filed for Chapter 13, you have a trustee helping to set your monthly budget, but if not it may be tempting to slip into the same habits that landed you in bankruptcy.
The problem is that if you start falling behind on credit card payments and forcing collection, you'll likely be penalized more than a person who hasn't just undergone the bankruptcy process because you'll be expected to learn your lesson from the ordeal.
To manage your budget, don't assume that just because you manage to acquire a new line of credit, you can spend recklessly. Knowing the consequences of falling behind on payments post-bankruptcy can help you set a budget and stay there.
The process of bankruptcy is supposed to be a learning experience for the debtor. As such, there are tons of great resources out there to exercise a responsible financial rebuild. Many U.S. federal agencies have programs specifically for people coming out of bankruptcy, so make sure to do your research on the matter.
When handled responsibility, the bankruptcy process is a welcome opportunity for a fresh financial start and can spell freedom for those in need.