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Going through bankruptcy is so humbling and the shame that goes with it can be nerve-wracking. But once you have gone to court, and the judge has released you from the debt, that is the moment you start to reestablish your credit after bankruptcy.
My husband and I went through bankruptcy about ten years ago. It was so humbling and amazing all at the same time. I’m not going to bore you with the details, but you can read our story in the two articles below if you are interested.
This is what happened when my husband lost his job
How bankruptcy changed our life for the better
What does bankruptcy do to your credit?
When you make the decision to file for bankruptcy (hopefully you spoke to a bankruptcy attorney about it), you are saying you don’t have any other choice in your finances.
And the cold hard truth is that filing for bankruptcy means the debt is forgiven, but that account will stay on your credit report for 7-10 years. Eventually, those accounts will fall off from your credit report.
So immediately after your case is discharged, all the accounts that are being closed by the bankruptcy will be sending information to the credit bureaus. The following month you will see what your credit score is. Don’t be surprised if it’s in the 400’s or lower.
The good news is it won’t stay that low if you do all the right things to reestablish your credit score.
Bankruptcy trustee meeting
I remember the day of our meeting with the trustee. I was so scared I was shaking. My husband and I were asked a few questions, our attorney spoke with the trustee about some things he questioned, and then the trustee turned to us and said it was all done. Signed the documents and sent us on our way.
Reflecting on that day, walking out of the courthouse holding my husband’s hand, it was a defining moment in our life. We both felt free of the burden of the debts. On the way home, we vowed to never go through that again.
If you are reading this and going through bankruptcy, my challenge for you is to make a decision, a mind, spirit, soul decision that you are never going to go through this financial disaster again. You are going to use this experience as an opportunity to grow and learn from your past. That is how you will succeed.
Steps to reestablish credit after bankruptcy
Budgeting 101
One of the first things we did was learn how to budget. We took Dave Ramsey’s course and that taught us the basics of budgeting. We obviously needed a lesson or two in budgeting since we had filed bankruptcy.
If you need some budgeting tools, I have created some awesome financial worksheets that you can download from my shop. Just use the code Bankruptcy so you can get them for free!
Commit to saving
We decided to commit to saving a little bit of money from our paychecks. Our initial goal was a thousand dollars as fast as we could get there.
We created our own budget system that works for us. We really tried to be that family that lived on cash, but we struuugggglllleedddd. It caused a boatload of fights and I was tired of fighting about money.
We started using multiple accounts when I explained to my husband I didn’t want to see where he was eating for lunch. He laughed but he understood.
Learn how to budget so you can save money. The goal is to be able to save enough money so you can start to pay cash for larger things.
How to budget using multiple accounts
Money goals
As my husband and I went along we started having more money goals. We started with an emergency fund of $1000.
Some of our goals were, purchase new furniture that we saved up for and paid cash, buy a house and buy a car. Buying the house was one of the biggest goals we were so excited to achieve. We had saved the down payment and we had waited long enough for our credit score to go back up.
Money goals are great because it puts perspective on why you are earning money.
Now that you have your budget and goals, let’s focus on what else you can do to raise your credit score.
Monitor your credit
If you never monitored your credit before, now is a great time to start! Monitor your credit every month for the first year and then check it once a month after that.
The reason you want to check your credit monthly is to make sure there aren’t any negative marks being made after the bankruptcy. You want your credit after bankruptcy to look ah-maz-ing with no late payments.
As you pay everything on time and you will see your credit score to start to improve. You will feel so happy and relieved when you start to see it go up.
Pay your rent or mortgage on time
Any loans or payments that weren’t absolved in the bankruptcy, you need to make sure you pay those bills on time. They will be reporting to the credit beureus and you want those positive marks on your credit report! Right?!
If you are a renter, see if you can have your landlord report your monthly payments. If they can’t or won’t there are ways to have it reported. This article on NerdWallet explains rent reporting in detail: How to Report Your Rent to Credit Bureaus.
Apply for a credit card or car loan
Once you have saved some money and you have budgeting under control, you can consider applying for a credit card or car loan. By opening up a new line of credit you are showing the bureus that you are trust worthy again. That will help increase your rebuild your credit.
Don’t repeat the past
There is only one reason why you are reading this post. It’s because you were never taught how to manage money. You were never taught how to make a budget and how to save. Therefore when you started earning an income, you spent it. Which led to you getting a credit card, which led to lots of credit cards, which led to debt that led to bankruptcy.
But now you have a brand new opportunity to learn and change your behavior and grow as a person. Yes, I know the shame of going through it, but that doesn’t mean you have stay in shame. You CAN heal, you CAN change your spending habits, you CAN learn from what you have gone through. And I believe you WILL!
I challenged you earlier in this post which was:
“my challenge for you is to make a decision, a mind, spirit, soul decision that you are never going to go through this financial disaster again.”
Stephanie Joseph
If you make the decision and decide you are going to learn, I guarantee you will never be in this place again.
Forgive yourself
Going through bankruptcy is the ultimate rock bottom place in your finances. When you declare bankruptcy you realize that you have failed at mastering your money. This brings the feelings of shame, anger, disappointment in yourself, sadness.
But you don’t need to stay here, in these feelings. You can chose to forgive yourself for making the bad choices. You can forgive yourself for not learning about money management.
Forgiveness will help you break the cycle and free you from your shame and guilt of what you have gone through. Forgiveness will promote healing and freedom from your past. If you don’t know how or what to say, you can just say God, I forgive myself for not being good with money. I am ready to move forward with a new beginning.
Don’t forget to grab your free download of my Complete Finance Package that will give you all the tools you need to help you start tracking your income and helping you budget. Click this link to be taken to my shop.
I believe you are going to make it through this time and you are going to reestablish your credit after bankruptcy starting today! It takes time and determination to never go through this again and every day does get easier! I promise!
Stephanie
Stephanie has been blogging at Sticky Note Mom for 8 years. Before starting her blog, she worked in the finance industry working on the floor of the Chicago Board of Trade to working for major financial institutions with personal financial planning and the mortgage industry. Now she shares all she has learned about frugal living to help others learn how to stop spending and start saving more.
