One of the most common questions we hear from our clients is “So – what happens AFTER bankruptcy?” Most people are so caught up in the overwhelming debt, the collection calls, and the possible repossessions or foreclosures that they don’t take the time to think about what will happen once bankruptcy gives them a fresh start.
At the end of your Chapter 7 or Chapter 13 case, you receive your discharge. Now that your financial troubles are settled, it’s time to move forward. You’ve got to start rebuilding your credit and forming solid financial habits that will keep you debt-free.
Keep a copy of your paperwork handy
It doesn’t happen often, but sometimes creditors might try to harass you to collect on a debt, even after it’s been settled by your bankruptcy case. Even though they can get in serious trouble, it does happen every once in a while. If you’ve got your paperwork handy, it’s easy to stop them cold with your discharge.
Make sure your credit report gets updated
A few months after your discharge, get a free copy of your credit report and check it out. Sometimes it takes a while for the report to get updated after your bankruptcy, but it SHOULD show that each debt included in your discharge is listed as “discharged in bankruptcy.” If you find any that still show that you owe, you can send a copy of your discharge and the schedule that shows the debt was included in your bankruptcy case.
Start paying off any debts that weren’t discharged
You’ll know if you have any debts that weren’t discharged. Certain taxes and student loan debts can’t be discharged, so once your bankruptcy case is complete, you’ll need to make arrangements to pay those debts. Typically, your student loans will receive a forbearance during your bankruptcy case, which means they’re essentially paused. Once you receive your discharge, you’ll need to be sure you’re on top of things so you don’t get underwater again.
Start working on rebuilding your credit
Now that your debts are discharged, you’ll want to start rebuilding your credit. Most of our clients acquire a secured credit card, where you deposit money into the bank as collateral for the credit card. Make sure you read the fine print though – some of the providers charge high fees and interest rates. It’s important to find a good deal – just make sure that the provider you choose provides information to all three credit reporting agencies.
Make sure that you never use more than 15-20% of your available credit on your new secured credit card. In other words, if you have a $1000 limit, you should never have more than $150 to $200 on the card at any time. Remember – you’re only using the card to help rebuild your credit, so if you stay in the sweet spot, you’ll stay responsible and send good signals to the credit agencies.
Financing a car can also help you boost your credit score, and typically it’s easier to finance a car than to obtain other types of credit after bankruptcy. If you decide to go this route, make sure you can afford your payments.
If you’ve got a house, make your mortgage payments on time
If you kept your home in your bankruptcy case, it’s incredibly important to continue to make your mortgage payments on time. Your bankruptcy case didn’t get rid of the lien on your house, so even after your case is over, the bank can foreclose if you fall behind on payments. If you didn’t reaffirm your mortgage debt, the bank won’t be able to get a deficiency judgement against you, but you’ll need to resume timely payments after your discharge.
If you’ve kept your car, make your car payments on time
If you kept your car and didn’t reaffirm your loan, make sure you continue to make your car payments on time. Just like with your mortgage, the lien still exists, and if you fall behind on payments after your discharge, your lender can repossess your vehicle.
Review and update your will
Because of your bankruptcy case, your financial situation will have changed. We typically recommend that our clients review their wills, as often the terms will need to be revised.
Start saving for emergencies
You’ve got a fresh start, so it’s important to establish solid financial habits. Start small – even a few dollars a month can help you form the habit. Establish an emergency savings fund so that unexpected bumps in the road won’t catch you off guard and build up unexpected debt.
Make sure you’re saving for retirement
If you’ve already got a retirement plan, make sure you’re making regular contributions. If you don’t have anything set up yet, it’s time to start saving. If you’ve got a 401k, make sure you’re contributing as much as you possibly can – definitely be sure to contribute as much as your company matches. Otherwise, an IRA is a great option that can be set up with automatic contributions from your paychecks. The most important thing you can do is set up your contributions so that they come out before you see the money.
If you follow these steps, you’ll be on the road to rebuilding your credit and establishing good financial habits that will help keep you debt-free.