What to Do After Filing Bankruptcy

Bankruptcy can - and should - be a life-changing event. Taking that step is difficult, but often the most important steps are the first that a debtor takes after filing bankruptcy. Bankruptcy experts recommend that the following actions be among your first after filing bankruptcy.

Budget, budget, budget. Whether or not spending issues were among the problems that triggered your bankruptcy, they are with you now. Particularly for Chapter 7 debtors, the change from pre-bankruptcy habits to life with few debts and no extra money comes in a matter of months. That makes it imperative to create and live by a strict budget that not only cuts down on unnecessary or frivolous spending, but finds a way to save at least some month every month. Remember that only significant cutbacks can lead to real savings. Perhaps you need to consider a less expensive apartment. Can you trade your car in for one that can you buy outright, or that has a lower monthly payment? Think of it this way: What if something happened that required a major outlay of cash? Could you find a way to get some so soon after filing bankruptcy? If you could, you may not have just gone through bankruptcy. So building up your savings is crucial, particularly because the soonest you can declare bankruptcy again is 2 years, and only if both are Chapter 13 cases. The time frame in other situations is much longer, including a full 8 years between the discharge of a Chapter 7 case and the filing of a new one.

Change your habits. This is the time to step back and consider all the factors that played a role in your bankruptcy. For many people, it was a huge medical bill or loss of a job or jobs that drastically changed their financial outlook. In those cases, it's likely the bankruptcy was inevitable, simply a huge dose of bad luck. But for many people, spending habits often play a role. Hopefully, the court-required counseling before and after filing bankruptcy helped put things into perspective. If not, it's important to exorcise those demons now or history is surely doomed to repeat itself. There are self-help groups to consider and additional credit counseling could reinforce the changes you need to make. But in the end, it's all about making the changes to take advantage of the second chance in life.

Rebuild credit. This is not Job 1, but it is certainly important for your financial future. Nothing hits a credit record harder than bankruptcy, or stays there longer. But most debtors report getting credit card offers shortly after filing bankruptcy. A credit card is a good idea because if you handle all your purchases in case, your credit score will never increase. But be selective. Consider starting with a secured card, one that is financed with your own money. The important factor is that the card reports your payment history to the 3 credit bureaus. Only buy what you can afford to pay off. Eventually, your credit score will start to improve and that may allow you to get a car loan at a rate that isn't too much higher than everyone else. Remember that rebuilding your credit after filing bankruptcy is like a 3-act play. Be patient and you will see real improvement over time.