If you are thinking about filing for protection under Chapter 7 of the Bankruptcy Code (or have already filed), you might wonder what life after Chapter 7 bankruptcy will be like for you. Many people worry that after bankruptcy, they will never again have good credit and they won’t be able to secure new credit, buy a car, or purchase a home. Bankruptcy will remain on your credit for 10 years, but it will likely not have as large of a negative impact as you might think.
Life After Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, the bankruptcy trustee may liquidate some of your assets to pay a portion of your debts. In most cases, however, people lose very little of their assets because of the available exemptions. If you are successful with your Chapter 7 bankruptcy petition, most types of unsecured debts will be discharged. This means that you will no longer have the legal responsibility to pay your discharged debts, and your former creditors will not be able to engage in any collection activities to collect on the debts that you owe to them.
In the time that immediately follows the discharge of your debts, you will likely find that you have some financial relief. You will not have to deal with garnishments, collection calls, collection letters, or creditor lawsuits, and you will not have a pile of unsecured debts. You should have more money coming in than you have going out. It is important for you to take some steps during this time to establish a solid financial footing so that you can continue to improve your situation.
Writing a Budget and Sticking to It
After you have completed your bankruptcy case, it is important that you take proactive steps to avoid financial trouble in the future so that you will not have to file for bankruptcy protection again. And in fact, you will not legally be able to file another Chapter 7 petition for eight years or a Chapter 13 petition for four years after your initial Chapter 7.
First, you should write a budget and stick to it. Start by tracking all of your expenditures for a month, including purchases that you make with cash. Save all of your receipts. At the end of the month, reconcile what you have spent with your bank account statement, and categorize all of your expenses. This will help you identify areas in which you are overspending so that you can get your spending under control. You can then create an effective, personalized budget that not only allows you to live beneath your means but also to save money each month.
Writing a budget is only the first step, of course. You should also make certain that you follow your budget. Continue to track and review your spending and your budget to keep yourself on track.
Your life after Chapter 7 bankruptcy will be focused on saving money, and you should aim to save at least 10 to 15 percent of your income if possible. In addition to putting savings toward your retirement in an individual IRA or your employer-sponsored plan, it is wise for you to work on building an emergency savings fund. Your goal for your emergency savings should be to save at least three months’ worth of your living expenses. This can help you to make it through rough patches in your life and pay for unexpected expenses, such as a major car repair or unexpected medical bills.
Rebuilding Your Credit
While you might think that you will struggle to get credit after your bankruptcy, you may be surprised by the number of credit card offers that you receive in the mail. Card issuers know that you have more disposable income after a bankruptcy discharge. They also know that you cannot file for another bankruptcy for a long period of time, so they are likelier to get their money from you.
Instead of just randomly choosing an offer from the mail, you need to review the terms of your options carefully. To rebuild your credit in a safe, effective way, you may wish to get a secured credit card. With a secured credit card, you deposit money with the card issuer. The amount of your deposit will serve as your credit limit. When you charge items to your card, the purchases will not be subtracted from your deposit amount. Instead, you will need to make sure that you keep on top of your payments and always make them on time. This will help you build your credit without spending money you don’t have. Consider checking with your bank to learn about the secured credit cards they offer, and avoid cards with high interest rates and annual fees.
If you establish good credit after your bankruptcy discharge, you might qualify to buy a home in as little as two years.
Life after Chapter 7 bankruptcy is not as difficult as you might think. With a little work, you can save money, learn how to budget your money, and rebuild your credit so that you can enjoy a solid and less stressful financial future. To learn more about life after Chapter 7 bankruptcy and to decide whether Chapter 7 bankruptcy might be a good choice for you, contact the Law Offices of Craig L. Cook to schedule a free consultation.