Rock Bottom: Hold Your Head Up and Move Forward!
Bankruptcy can be an extremely stressful point in your life. You’ve hit rock bottom and there is no hope to meet your financial obligations. You may have fallen behind your bills because of a medical expense, a loss of employment, car accident or an unhealthy shopping addiction! Whatever the reason, you’re lost at sea and bankruptcy is the only thing left to keep you afloat.
Despite all of the negative connotations associated with bankruptcy, it is a tool that can be used to re-establish your financial future. Yes, filing for bankruptcy will be considered a “black spot” on your credit history and it will penalize you. There is nothing you can do to change the fact that you’ve defaulted on several loans or credit cards. Everyone knows that filing is not something you should want to do, but it may be something you need to do.
Step 1: File for Bankruptcy
Don’t worry, it’s not so bad! Bankruptcy is a tool to restart your life and bring back a sense of normalcy. Once you’ve filed and court judgment has been issued, most of your debts should be wiped away. It may take several months for creditors to take notice of the judgment, so you may have to field a few more collection calls. Fortunately, you will be able to direct them to your bankruptcy attorney and those bothersome debt collectors will cease. You’re in the clear, but there is still more work to be done. If you continue to spend resources that you do not have, you will wind up in more trouble.
Surprisingly, you may begin to receive credit card offers immediately after issuance of your judgment. You may even receive credit offers from companies that you were unable to pay before your bankruptcy! But beware, you must read all of the paperwork before opening any line of credit. The credit card offers you will receive will have higher interest rates, lower lines of credit, and annual fees. Pick the best and leave the rest. One or two new credit cards within the first two years of your bankruptcy will help your credit score grow!
Step 2: Baby Steps to Better Credit
Now that you have that precious plastic in your pocket, do not use credit for everything.
Remember every reason why you had to file for bankruptcy and think before you purchase!
Will you have the ability to pay your credit card statement if you choose to make this purchase? If you don’t think you can pony-up a payment, do not buy. It is even more important than ever to pay your bills on time. You need to earn trust to rebuild your credit and maxing out cards is not the best way to earn that trust.
To increase confidence in your financial credibility, make small purchases that you can easily pay off in full every month. This practice will show future loan officers that you can responsibly make purchases and keep your balance low. Building fiscal responsibility will take time and the more you curb old spending-habits, the better your chances are to be approved for larger amounts of credit.
Step 3: Shoot for the Stars & Make a Big Purchase!
After two or three years of good payment history, you should begin to consider a larger line of credit, such as a car loan or mortgage. It will be difficult to wait for such credit-worthiness, but you can do it! Continue to use fiscal restraint and make smart purchases. With larger amounts of credit, there are more chances to miss payments or default, so you must make sure you can afford that new computer, car, or home purchase before signing on that dotted line.
If you do not get approved for a loan, don’t give up hope. It may simply be too soon to get approved. Every lender has different criteria for loan approval and several factors other than your bankruptcy may influence approval. Your income, credit balances, spending habits, etc. will all be determinants. If you are rejected, find out what factors are causing your approval woes. Learn what you need to do to fix the problem and set goals. Accomplish those goals and try again.
After a few years, your bankruptcy will be a thing of the past. Hold your head up high, make smart financial decisions and always remember to enjoy life despite your credit history!