Credit Infocenter

There is Life After Filing For Bankruptcy

Written by: Kristy Welsh

Last Updated: October 3, 2017

If you are reading this article, chances are you took the plunge and filed for bankruptcy. Hopefully, this decision was made with a lot of thought and advice from a competent financial and legal professional. Rebuilding you life after bankruptcy, including your credit rating, finances and your emotional well-being, can sometimes feel like an overwhelming task. But it needs to be seen as the first step toward a more financially sound future. Don't feel like it is the end of the world, take the view you will be better off down the road and there is indeed life after bankruptcy.

Types of Bankruptcy Protection

Just to get everyone up to speed, there are two types of bankruptcy protection, Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy is the most widely used and it for those who have few assets and no ability to work out a repayment plan with their creditors. These people turn over their assets to repay their debts and whatever cannot be repaid is wiped clean. The debtor comes out of this bankruptcy fairly quickly and debt free.

Chapter 13 Bankruptcy is for those individuals who have a lot of assets, such as cars, homes, stocks, and want to keep the majority of their assets. They are willing and able to work out a payment plan with their creditors because they have an ongoing and possibly substantial income — they are just looking for help in restructuring the debts in order to pay them off or negotiate them down. This type of bankruptcy can last for years until the debts are paid off.

While both types of bankruptcies last for 10 years on your credit report, a Chapter 7 filing can have a more detrimental effect on your credit score.

Rebuilding Your Credit and Your Life After Bankruptcy

The first goal for someone emerging from a Chapter 7 or during a Chapter 13 bankruptcy, is to begin to rebuild your credit. There is no quick and easy way to do this so don't think it is going to happen overnight. It will takes years to get your credit score back to where it once was but if you follow these steps, you will see the rewards of your hard work.

  1. Get and Use a Secured Card Card.  If your credit score has taken a severe hit, you will more than likely not be able to get an unsecured credit card. A secured credit card will require you to make a deposit up front before they will issue you a card. The benefit of using one is that they will report your activity to the credit bureaus so you will begin to build up a new credit history. Eventually, you might be able to convert this secured card into an unsecured card, as long as you pay your bills on time and show the bank you are becoming a good credit risk.
  2. Manage Your Credit Post-Bankruptcy.  Filing bankruptcy affords you a fresh new start in your financial life, so avoid at all cost falling back into the same mess you just came out of! You are going to need to manage every dollar that comes in and goes out to make sure you are not falling into debt again. Get on a budget plan and stick to it — even it that mean slimming down your lifestyle. An over zealous lifestyle is probably what got you into this mess in the first place so don't repeat the process again.
  3. Build Up a Savings Account.  After you have worked out a manageable budget, make sure to factor into your budget saving money and putting it into some type of savings account. Have a set amount you are going to sock away every month. Before you know it, you are going to have a nice nest egg built up, which you can use for an emergency or just let is grow for retirement. This will show lenders you are capable of saving money, not spending it.
  4. Pay Your Bills on Time.  You are going to need to show future lenders that you are becoming a more desirable credit risk and the only way to do this is to pay your bills on time. Don't come out of bankruptcy and fall back into your old habits — this will not get you any new credit down the line. Lenders want to see that you corrected your mistakes and are now able to control your financial life and spend within your means and pay your bills on time.

Having a Life After Bankruptcy

Filing for personal bankruptcy is the last resort for those who cannot carry their current debt load, but it often comes with further financial damage and emotional strain. Understanding the reasons for your crushing financial picture and slowly rebuilding your credit history are critical steps in surviving the process. There is life after bankruptcy but you will need to take the necessary steps to make sure you do not fall into debt again. You now have a fresh start with some new challenges so keep your chin up and all of your hard work and determination will pay off in the end.