Soon after you file bankruptcy, your credit report will show that you filed bankruptcy, but it will also show that you are debt free.  That’s why a lot of my bankruptcy clients get pre-approved credit card offers in the mail after their bankruptcy is over.

The issue is not whether you will rebuild your credit, but how well you will do it.  Here are my tips for rebuilding credit after bankruptcy.

Go Slow

So, here’s my first tip: Before getting new credit, stay on a “cash-basis” for several months so that you can make sure that you stay on a budget.  Get used to saying “no” to pre-approved credit offers.

Take A Dave Ramsey Class

All the financial information you have received up to this point got you to this point.  So, if you want to change your finances, then you probably need to get a new source of financial information.  Dave Ramsey’s Financial Peace University is a free class that is held at many local churches – you just have to buy the books.  The information is well-worth the investment of time and money.  Go to daveramsey.com for more information.

Check Your Credit Report 7 Months After You Successfully Complete Your Bankruptcy Case

Creditors must report a zero balance within 6 months of the completion of your bankruptcy case.  Make sure that zero balances are reported for debts covered by your bankruptcy.  If they are not being reported correctly, then contact the credit reporting agency and provide them a copy of the Discharge Order entered in your bankruptcy case.

Save Up $1,000 Emergency Cash

You need some emergency money, not emergency credit.  You will likely have to increase your income, then save that income.  This may involve having a garage sale, mowing lawns or doing some odd-jobs.

Save Up 3 Months Of Living Expenses

You need to be able to absorb the unexpected events in life without having to use credit.  If you use that money for an unexpected event, then you must replace that money before going any further in the process.  This involves increasing your income and saving that income.  Remember, if you increase your income and spend the extra income, then you are just broke at a higher level.  So, save it.

Get Out Of The “Car-Payment-For-Life” Club

Over 85% of my bankruptcy clients have a car payment.  The average car payment is about $460.  If each spouse has one, that’s over $900/month in car payments.  Most of my clients would not have needed my help if they were out of the “car-payment-for-life” club.

It’s easy to recommend, but hard to do.  The first step is to pay off your vehicle loan, then keep making the payments, but make them to your savings account.  The key to making this work is to use an automatic deduction with your employer or your bank.  Have the money go to an account at a different bank than where you have your checking account.  Do it for the same number of months that it took you to pay for your car.  After that, use one-half of the cash to replace your car, then keep the other half in savings.  Whatever would have been the new car payment amount, send that amount to your savings account each month to continue increasing your savings.

Get A Secured Credit Card in Month 7 After Your Bankruptcy Is Over

Apply for a secured credit card.  A security deposit is required in order to receive credit.  Even though you will get pre-approved credit offers, stick with a secured credit card to make sure you “don’t bite off more than you can chew.”  Use it ONLY to purchase gas and groceries, and be sure to pay it off in-full and on-time.

Check Your Credit Score One Year After Your Bankruptcy Is Over

Check your credit score.  If you followed my recommended tips, you may be surprised how well your score has improved.  Stay on course.

Never Finance Anything That Goes Down In Value

That means you should never finance the purchase of cars, furniture or electronics.  Save up, and pay cash.  You will get a much better deal if you pay cash, and you will avoid over-spending when you use cash.

Save Up For A Down Payment On A House

Most people that I see for a debt consultation have the idea in mind of “getting ahead.”  That usually means getting to the point of being able to save money.  Again, that means increasing your income and saving that increase.

Most often, clients want to save up so that they can qualify for a home loan.  You want to save up enough money so that you can make a 20% down payment for your home purchase.  It makes it much easier to qualify for a home loan when you have a large down payment.  Also, you don’t have to pay for PMI (Private Mortgage Insurance) when you have a 20% down payment.  Another benefit is that a large down payment makes it easier to do a 15-year home loan rather than having to do a 30-year home loan.

I hope this information has been helpful.  Although there is a lot of good information about bankruptcy on the internet, you really need to know how bankruptcy may apply to your specific set of circumstances.  When the time is right, call me to schedule a free, initial consultation to see how bankruptcy may apply to your specific situation.