Reestablishing Credit After Bankruptcy

Information Provided by a Maryland and Washington DC Bankruptcy Attorney

It is often difficult to reestablish your credit after claiming bankruptcy. However, it is not impossible. Many debtors who file bankruptcy already have a history of bad credit due to late payments, foreclosures, repossessions, and judgments brought by creditors. Following bankruptcy, your income to debt ratio often improves because it no longer includes a large amount of debt. If you can build upon this positive beginning, you can begin to build a positive credit history that you may never have experienced before. With the assistance of a qualified Maryland and Washington DC foreclosure lawyer, you can not only survive bankruptcy proceedings and eliminate any overbearing debt but you can also restructure your financial situation so that you can begin reestablishing a strong credit record.

Begin Spending Your Money in a Frugal Manner

To control your spending and manage your debt, it is important that you understand what you spend your money on and why you spend. Begin making a list of what you spend each day, how much it costs, and any charges made to your credit card. At the end of one month, analyze your list and group your expenses into categories, such as utilities, entertainment, commuting, food, clothing, and medical expenses. Once you have done this, begin looking for areas where you could start cutting your spending. For example, if you spend a lot of money eating out during the work week, try to cut back the number of days each week that you buy lunch and begin packing a lunch instead. Simple saving strategies can add up to decreased debt and more financial security quickly.

Create a Budget

Once you have identified your monthly expenses, you should create a budget that will allow you to live within your means. To create a budget, first create a list of your monthly income, including money from any jobs, self-employment, alimony support, interest or dividends, pension or retirement income, and public assistance. Then compare this list to your monthly expenses. If your expenses exceed your income, you need to continue decreasing your expenses.

Once you have created a feasible budget, you should continually monitor your spending to ensure that you live within the budget that you created. Remind yourself on a continual basis why you are controlling your spending. Also, ensure that your budget is realistic and adjust it if you failed to include necessary expenses in your initial budget.

Start a Savings Plan

One of the keys to financial independence is saving money. If you ever face an emergency or have unexpected expenses, a savings account is absolutely necessary to maintaining your standard of living. To begin saving, you should establish a savings plan where you contribute a portion of your income on a regular basis, which will ensure that you actually contribute to the plan. Creating a separate account from your normal checking account will help you keep separate funds. Creating a savings account that is automatically withdrawn from your paycheck is a simple way to ensure that you begin saving funds. Examples of such accounts include 401(K)s, IRAs, or other retirement accounts, as well as 529 college savings plans.

Use Credit Cards Sparingly

If you are permitted to keep a credit card after bankruptcy, continue to maintain an open account, but ensure that you do not begin incurring large credit card debt. Use your card occasionally and try to pay it off each month. Even if you cannot pay the entire amount, make sure that you pay the minimum amount due so that your account will not be in default.

If you were not able to maintain a credit card account after bankruptcy, a secured credit card account may be an option to help you reestablish a good credit record. A secured credit card is issued by a depository bank and is secured by money deposited into your bank account with that bank. In the event that you default on a credit card payment, the bank uses money from your account to cover the payment. The interest rates for secured credit cards are higher than those for normal credit cards, but, if you make timely payments each month, you can avoid paying interest altogether, while slowly rebuilding your credit.

Obtain Loans with a Co-Signer

Although most lenders will not likely allow you to take out individual loans following your bankruptcy, you can likely receive some loans if you can obtain a co-signer with a positive credit history. Timely payments made on loans following bankruptcy will continue to improve your credit score.

Conclusion

The best way to improve your credit score is to learn good money management skills and continually apply them in daily life. You must learn from your bankruptcy experience and continue to foster financial responsibility as you move on. While bankruptcy does negatively impact your credit rating, this impact is only temporary and, if you continue to focus on reestablishing a positive trend of money management, you will improve your credit rating and avoid future financial disasters. If you have any questions concerning the bankruptcy process or reestablishing your credit, contact Maryland and Washington DC bankruptcy attorney Kevin D. Judd.

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