Millions of Americans file for bankruptcy each year, often because of excessive debt that they can’t repay. Unfortunately, bankruptcy comes with severe repercussions, such as the inability to secure lending in the future. Nevertheless, bankruptcy shouldn’t have to ruin your financial future. Although achieving financial freedom can become a bit more complicated, it’s not out of reach.
Here’s how to recover after bankruptcy[ew1] :
Create a Budget
Think of your post-bankruptcy life as a “fresh start.” Even though bankruptcy stays on your credit report for up to ten years, now’s the time to build better financial habits. You can’t healthfully navigate life without a refined budget. Since you filed for bankruptcy, you probably have a handful of gaps in your budget.
It’s essential to consider every income stream and every cash outflow when you create a budget. In many cases, budgets fail because they omit critical pieces of monthly spending. For example, you might use a particular credit card for dining out and forget to incorporate it into your budget. Before you know it, you end up racking up a balance that you can’t pay.
We understand that it’s challenging to track every single dollar, especially in dual-income households. Our platform provides polished charts and graphs that depict your monthly spending. You’ll also receive spending alerts[ew2] , so you always say in the know. With our tools, you’ll no longer have unpleasant surprises at the end of the month.
Reduce Your Expenses
Even if you feel like you’ve cut all unnecessary expenses out of your budget, there’s likely still room for improvement. Small things, like ditching your morning coffee run, can save you hundreds of dollars over the course of a year. With your newfound discretionary income, you can save more money or pay off debt.
Try these tips and tricks, and your expenses will start to shrink:
- Get rid of cable and use a streaming service instead.
- Don’t eat out too often unless you have the room in your budget.
- See if you can reduce utility bills by switching companies.
- Combine cell phone and car insurance plans.
- Always be on the lookout for coupons and discounts before grocery shopping.
We know that cutting expenses is easier said than done, but we’re here to help you every step of the way. Our insightful platform sends you spending alerts, which can help you identify significant expenses. Not only that, but you can also view two years of transactions to have more visibility into your historical spending. Although we can’t manage your budget for you, we can give you all the tools that will catapult you towards post-bankruptcy success.
Don’t Fall Behind on Non-Bankruptcy Debt
Life after bankruptcy isn’t always a “clean slate” because you can’t discharge all types of debt through bankruptcy. These non-dischargeable debts include student loans, overdue taxes, alimony, and child support, to name a few. Fortunately, bankruptcy should help give you the relief you need to continue paying these outstanding debts. However, you mustn’t fall behind.
If you have already gone through all the bankruptcy proceedings, you should know what assets belong to you and what assets belong to creditors. Therefore, you have a good grasp of where you’re standing financially and how much you need to allocate towards non-bankruptcy debt. Again, you’ll want to revisit your budget and look for all opportunities to reduce expenses.
After bankruptcy, you’re probably not in a position to splurge and pay down all your debts. However, if you can pay more than the minimum, you’ll save a significant amount in interest expenses. Our debt simulator[ew3] is an excellent tool that enables you to see how different debt pay-down scenarios will affect your overall interest costs. We recommend using the debt simulator before creating your budget, so you can determine how much money you’ll put towards debt each month.
Rebuild Your Credit Score
It’s not unheard of for your credit score to drop up to 180 points after you file for bankruptcy. So, how do you make a comeback when you’re already in a tough financial spot? You must continue to make timely payments on your non-bankruptcy debt. You should also get a secured credit card designed especially for those on a mission to rebuild their credit. Lenders are often hesitant to give money to individuals who have filed for bankruptcy, so rebuilding your credit takes patience.
Review Your Credit Report
You should regularly review your credit report to catch any discrepancies. The three major credit reporting agencies – Equifax, Experian, and Transunion, must allow you to obtain a free copy of your credit report every year. Look for errors, such as collection accounts that don’t belong to you or late payments that you don’t recognize. If you find something odd, you can dispute it with the credit reporting agency. The three bureaus must respond within 45 days.
Follow the below links if you want to start a dispute:
Be Mindful of Credit Card Balances
If you still have credit cards after filing bankruptcy, or open secured cards, always be mindful of the outstanding balance. You don’t want to get yourself into a situation where you can’t make the payment. Moreover, racking up too much credit card debt can hurt your credit score by increasing your credit utilization rate. In short, this rate is the total amount of credit you have used divided by your total available credit. Financial advisors recommend that you keep your utilization rate at or below 30%.
Build Stability Into Your Life
Unfortunately, lenders, landlords, and employers tend to stigmatize bankruptcy. Even though bankruptcy stays on your credit report for ten years, you can start to turn your life around much quicker. If you begin to build stability into your life (i.e., staying at a job for several years), lenders may view you as less of a risk. Remember, your three-digit credit score doesn’t mean everything; underwriters look at various other factors.
You Can Recover From Bankruptcy
Financial freedom is always in reach, even if you have to file for bankruptcy at some point in time. At Chunk Finance, we have robust tools and resources that empower you to pay down debt, thoughtfully plan your budget, and create healthy financial habits.