A bankruptcy can be one of the most traumatic financial events that you'll ever go through, and you'll probably breathe a sigh of relief when the bankruptcy filing, with the help of companies like FactorLaw, is final and all of the debts that have been hanging over your head are safely discharged. But once that's finished, you'll have to figure out what to do about your financial health going forward. How do you repair your credit? How do you prevent yourself from falling into a hole again? You will need to make a change in the way that you handle money and credit if you want to prevent your financial history from repeating itself. Here are some tips that can help you get started on a new and more stable financial path.
Write Down What You Spend
When you find yourself with out of control debt and facing bankruptcy, one thing is for sure: you've lost control of your finances. That's not necessarily a result of you doing anything wrong – if your income decreased unexpectedly or you were hit with unexpected expenses, like medical expenses, you may not have been able to stop yourself from losing control. However, you still need to work on getting that control back now that the bankruptcy is complete. You can do that by making yourself fully accountable for everything that you spend.
Your best bet is to keep a written log of all of the money that you spend – especially any cash expenditures. Swiping a credit or debit card can sometimes be a little too easy, but at least you can look back at your credit card statements and see exactly where the money went. Since cash doesn't leave as much of a paper trail, it's harder to account for, and small expenses can really add up and end up getting out of control. In the immediate aftermath of a bankruptcy, you may be paying with cash instead of credit more often than you used to, so developing the habit of writing down each purchase is critical.
Don't Go Cash-Only
Speaking of cash, don't get too carried away by the idea of living on a cash-only basis. It can be tempting after you've been burned by credit and debt, and there are some well-known financial gurus who even promote the idea. But it's really not a smart or realistic plan.
While it can be useful to swear off credit for a short time while you get your finances in order, you will eventually have to begin working on repairing your credit score. The fact of the matter is that you will need credit again someday. Do you ever plan on moving? You'll need to pass a credit check to buy a house, or even to rent an apartment. Will you ever need to buy a new (or even used) car? That will take credit. Even some jobs require credit checks. You can't opt out of the world of credit forever – don't give into the temptation to try. The longer you wait to start rebuilding your credit, the more difficult it will be to do. Invest in a secured credit card to start the rebuilding process. After a few years of timely payments – which will be reported to the credit bureau and will gradually increase your score – you'll probably be offered the option of an unsecured card.
Monitor Your Credit Report
Keeping a close eye on your credit report in the years after a bankruptcy is a must for rebuilding your credit. You'll want to make certain that the accounts associated with your bankruptcy are updated, for one thing. It's not uncommon to find that credit cards or medical debts are still showing up as open and due on your credit report, even after they've been settled by a bankruptcy, so you will need to have those updated. Furthermore, you want to make sure that any old or inaccurate information is removed. You can dispute old or inaccurate information by sending a letter to the credit bureau.
Don't fall for "credit cleaning" companies that promise to remove negative information from your credit report early. A Chapter 7 bankruptcy will stay on your credit report for ten years, and a Chapter 13 bankruptcy – as well as most other debt – will stay for seven years. There is no legitimate way to have them removed early. Rather than paying someone to clean your credit, you're better off putting that money into an emergency fund instead.
Recovering from a bankruptcy may not be happen as fast as you might like, but you can begin tracking your spending, re-entering the world of credit, and monitoring your credit report right away. These are concrete, important steps that will help you back on the road to financial recovery.