The stigma of filing bankruptcy will probably never completely disappear; however, there is life after bankruptcy.
At least that is what I tell my clients to help them feel less anxious about filing for bankruptcy relief. Some assume that I am just doing my job as a bankruptcy paralegal but the truth is I know because I had to file for bankruptcy relief myself years ago.
The reasons why people file for bankruptcy relief are as varied as the creditors listed in each case. My case was because I was young, had no health insurance and had overwhelming medical bills that I would never be able to pay no matter how hard I tried.
Some of my clients file for the same reason; others because they lost their jobs and unemployment has run out while others have lost their spouse and cannot pay the bills on one income. I will admit there are some, although fewer than people think, that have just been reckless with their personal finances and gotten in over their heads.
I filed for relief under Chapter 13 of the Bankruptcy Code, which means I paid a bankruptcy trustee each month for five years.
My bankruptcy plan paid my creditors back almost in full but not quite. Through my bankruptcy, I was able to reorganize my personal finances, pay back most of my debt and learn how to live without credit cards, loans or finance companies for five years.
After my bankruptcy plan was completed, I found that my credit score had improved a little because I finished my plan.
I was able to purchase a car and finance the balance due within a year of finishing my bankruptcy plan. By paying my car payments on time each month, I was able to improve my credit rating to the point of qualifying for a mortgage loan.
My clients who file for relief under Chapter 7 also find that there is life after bankruptcy.
Chapter 7 is a liquidation rather than a personal reorganization. Debts are discharged, with a few exceptions, and debtors are allowed to keep some or all of their personal property (depending on the exemption laws in the state where the case is filed).
Chapter 7 debtors can reclaim their credit rating after their bankruptcy is discharged by continuing to pay secured creditors (i.e. mortgage payments, car loans, etc.) and non-dischargeable debts (i.e. student loans, taxes, alimony and child support) on time.
They should also avoid jumping back into debt with the first credit card offer they receive – which will come with a high interest rate and low credit limit.
I was able to survive after bankruptcy and so do the clients I work with as a paralegal. There are ways to improve your credit rating and take control of your personal finances after bankruptcy as long as you are committed to your goals.
1. Create a budget: If you never lived by a budget before, this is the time to do so. Creating and sticking to a budget is essential for having a successful financial future.
2. Pay everything on time: Continue making all payments on time each month – that means before the due date not during the grace period before a late fee is added.
3. Build an emergency fund: Things happen and it pays to be prepared for them. Start a savings account for unexpected expenses instead of incurring debt on credit cards, with finance companies or cash advance companies.
4. Get one credit card: The limit will be small and the interest rate may be a little larger than you like; however, both will improve as you demonstrate your ability to pay each month on time. Rather than pay in full each month, make the minimum payment plus a little extra each month to show you are dependable.
5. Monitor your credit report: Check you credit report often and note items that are lowering your credit score. Most of the top credit reporting agencies now offer explanations of what items are lowering your credit score and how to improve them.
6. Do not fall for scams: Companies that promise to raise your credit score fast without any hard work on your part are probably scams. If it sounds too good to be true, then stay clear and keep plugging along. Your hard work will pay off sooner than you think.