Life After Bankruptcy:
How to Rebuild and Improve Your Financial Future

If you are one of the millions of Americans who discharged debt in a Chapter 7 bankruptcy, now is the time to change your financial future for the better. Your choices and actions determine how quickly you can recover from a bankruptcy.

Improve your credit history
The bankruptcy notation will be evident on your credit report for a total of ten years, and will impact such options as rental and employment opportunities, insurance qualification, and loan eligibility. However, though time may not heal every wound, it does mend credit report damage. Your credit score will take a major hit immediately after the discharge, but the older the notation becomes, the less impact it will have on your score.

If you filed because of a crisis situation (such as a medical issue or unavoidable long-term unemployment), do attach a 100-word statement to your credit file. It is your right under the Fair Credit Reporting Act to offer an explanation of what happened. Once you add it, anyone who pulls a copy of your report will be able to read why you filed. It won’t change your credit score, but it could influence a future employer or landlord to be sympathetic to your situation. Be brief and specific – the bureaus may edit your statement if it’s too long.

Reestablish credit
It may seem illogical, but obtaining and using credit soon after the discharge is the swiftest way to repair past damage. The key is to use credit wisely: pay on time, every time, and avoid carrying a balance. As the bankruptcy notation ages and becomes less significant, you’ll be building a positive credit history.

When applying for credit after bankruptcy, don’t just accept any random offer in the mail, since it may not be the greatest deal that you are eligible for. Become an active consumer and look for a credit card with the very best terms: the lowest interest rate you can get (though if you don’t carry a balance, the interest rate you would be charged on revolving debt shouldn’t matter) and no or low annual fees. Also, seek a long grace period so you have as many days as possible to pay your balance before interest is added to your purchases.

Develop a fresh budget
Now that you no longer have the debt that you had before the bankruptcy, create a budget based on your new financial situation. A well-constructed budget will allow you to not only plan for emergencies and goals, but will help you avoid using credit cards to pay for periodic expenses (such as car repairs, school tuition, and property insurance), as well as keep your daily spending on track.

To develop a budget, list all of your expenses in detail, and then subtract the total from your income. If you are spending more than you make, it is critical that you take immediate action to reverse it. Either cut out or down on unnecessary expenses, or find ways to increase your income. If you don’t take make adjustments, you are likely to find yourself in debt again – but with fewer options to get out of it.

Live a debt-free lifestyle
Remaining in the black is extremely important right now. Bankruptcy relief won't be an option for eight years since your last filing. If you run up balances that you can’t pay in the meantime, you could be sued for nonpayment and subject to aggressive collection activity, including wage garnishments and property liens.

Make a commitment to yourself: if you can’t afford to pay for what you want, rather than pull out the plastic, either save for it or forget about it. Your long-term security depends on your ability to live within your means.

Make savings a priority
As you know, financial emergencies do happen. If you don’t have anything saved you could be tempted to rely on expensive forms of credit to get you through the crisis – and end up in debt again. Therefore, it is a good idea to use the money that had been going toward past debt to instead go toward building savings.

To save effectively, have a set amount automatically deducted from your paycheck or checking account and deposited into a savings account. After you have built up three to six months’ worth of essential expenses, begin to set aside money for other goals. Soon you can invest what you’ve saved – so your money can work hard for you rather than just the other way around.

Seek support
Unfortunately, some people who filed may have been able to avoid bankruptcy if they sought help early. Who do you trust, though, when you are going through financial troubles? Scams do exist, so be cautious when seeking an organization to assist you with money management and credit issues.

Consumer Credit Counseling Service of San Francisco is an accredited, nonprofit agency with a long and reputable history in the community. Our professional, objective counselors will be able to help you set up a workable budget, review your rights and responsibilities as it pertains to debt, and provide you with personal finance education.

Make the most of your “fresh start.” This is your opportunity to make some powerful and positive changes to the way you deal with money. With the right tools and decisions, you can rebound from bankruptcy efficiently, and create a safe and stable financial future.