Creating a budget, monitoring your credit report and prioritizing saving are essential for a healthy financial future. It is also a good idea to keep any bankruptcy paperwork that you have in case it is required in the future when applying for mortgages or loans.
The road to recovery after bankruptcy may feel overwhelming, but consistent efforts will lead to a stronger financial foundation. Learn the steps to take after filing for bankruptcy to rebuild your financial health:
1. Set Realistic Goals
A financial plan is an essential component of rebuilding your credit and achieving financial success. You should create and maintain SMART (specific, measurable, actionable, realistic, time-based) goals to build savings and reduce debt.
The first step is to create a budget and track your spending. This will help you avoid unnecessary debt, which can impact your credit score and keep you on track to rebuilding your credit.
Filing for bankruptcy halts creditors’ attempts to collect on certain types of debt, including credit card and medical debt. However, it does not discharge alimony and child support obligations, student loans or back taxes owed to the IRS. A skilled Irving bankruptcy attorney can help you determine whether bankruptcy is the right choice for your circumstances. *Annuity products are not bank products, not a deposit, not federally insured, not a guarantee and may lose value.
2. Create a Budget
Once you’ve settled on financial goals, it’s time to create a budget. Start by documenting your income, including wages, side gigs and government benefits. Then, identify essential expenses like housing, food and utilities. Finally, identify non-essential spending areas where you can save, such as eating out or a home phone line.
Next, make a budget that allocates funds for these essential needs and a reasonable amount for savings and emergencies. Avoid spending more than you earn and avoid credit card use unless necessary. If needed, seek professional advice from a bankruptcy attorney and consider credit counseling or financial education programs to strengthen your money management skills. Lastly, start saving as soon as you can. Even a small amount will add up over time. Set aside a percentage of each paycheck and stick to it.
3. Create a Savings Account
While filing for bankruptcy may hurt your credit score, you can work to rebuild your financial health by taking proactive steps. This includes creating a budget and setting aside money for emergencies. By doing so, you can prevent future debt problems and avoid the need to rely on credit to cover expenses.
Start by tracking your income and expenses for one to two months. Document every source of money coming in, including wages, side gigs and government benefits. Then, divide your expenses into fixed and variable costs. Set goals for yourself and stick to them.
For the variables, consider using a cash envelope system to manage your spending. This method allows you to only spend the amount that is in an envelope, eliminating the risk of overspending and impulse purchases.
4. Pay Your Debts on Time
While bankruptcy leaves a mark on your credit history, it’s possible to rebuild your score over time. Prioritize your expenses, create a budget, and set realistic goals. By taking these steps, you’re demonstrating that you can manage your finances responsibly.
You should also pay your bills on time, and avoid spending more than you earn. If you receive a tax refund, work bonus, cash gift or other income, consider using it to pay off your debt.
Lastly, save all of your paperwork related to your bankruptcy. This will come in handy if creditors or debt collectors ever question your filing. It can also help you prove that you’re a responsible borrower in the future.
5. Apply for Credit
After bankruptcy, it’s important to focus on debt repayment. If you have outstanding debts that cannot be discharged in bankruptcy, negotiate with creditors to work out a payment plan. Also, avoid using credit cards except for emergencies. Instead, consider becoming an authorized user on a credit card of a friend or family member and agreeing to strict spending limits.
As you continue to pay bills on time and establish a positive credit history, your credit score should begin improving within two years after bankruptcy. Having good credit is essential to achieving financial stability. If you are interested in purchasing a home, consider FHA- or USDA-backed mortgages, which can be more forgiving of blemished credit than conventional loans. Also, make it a habit to regularly check your credit score. For more information, sites like https://www.ljacobsonlaw.com/pa/york-bankruptcy-attorney/ will have a lot of resources to help.