Bankruptcy can offer a new lease on life by discharging unsecured debts and making monthly living expenses more affordable. But bankruptcy is nothing to enter into lightly or to choose without first considering the long-term consequences of filing. For many people, the lowered credit score is a small price to pay for being debt-free, especially when they’re well-informed about how to move forward and rebuild their credit after bankruptcy.
Most people who file bankruptcy have credit card debt, so the thought of having a credit card again can be scary. It’s, of course, best to live within your means and save up to make purchases to avoid debt. However, your credit score is essential, and it won’t improve unless you take steps to rebuild your credit. Immediately after you file bankruptcy, your credit report will show the bankruptcy itself, plus any late or missed payments from your past. By making timely, full payments on any bills you have, this positive history will soon overshadow the negatives. It’s wise to apply for a small credit card, even if you have to start with a secured account with a high-interest rate. Make small purchases and pay them off altogether each month, and you’ll see your credit score improve. Soon, you’ll be able to negotiate a better interest rate, which can make a difference when you use credit for larger purchases in the future.
If possible, it’s best to wait a while after bankruptcy to finance a car. If this is not an option, (for example, you lost your car in the bankruptcy and did not have enough money saved up to purchase with cash), be prepared to pay a high-interest rate after making a sizeable down payment. The longer you can wait to do this while using your small credit card, the lower payments you’ll end up with. Just like taking on any debt, make sure you carefully review your budget to ensure that the payments will be easily manageable.
You could be in a position to purchase a home within a few years of filing bankruptcy. The lender will review your credit score and history before filing, as well as your current income and situation. Most lenders will require a hefty down payment, and you may need to jump through more approval hoops and paperwork than other purchasers, but home-ownership is an option.
Making a Move
Each bankruptcy is different, but sometimes filers also have to deal with eviction or foreclosure as part of their case. Others may choose to move into a more affordable rental to make monthly expenses more manageable or want to upgrade after their debt is discharged. Regardless of the reason for moving, a new rental always includes a credit check. A bankruptcy won’t necessarily disqualify you from renting a home, but this depends on the landlord or rental company. It’s best to tell your potential landlord ahead of time so that they are prepared when they pull your report. Some people even attach a letter explaining their circumstances and proving that they are now able to make their rent payments.
No Need to Delay
It can be disappointing to file bankruptcy, but for many people, it’s the best possible choice. Instead of having a credit report that shows staggering debt and late payments, you could have a bankruptcy followed by clean credit. If filing is inevitable, the sooner you file, the sooner you head in a positive direction.