Bankruptcy is not a death sentence for your finances. A common bankruptcy myth is that people who file for Chapter 7 relief never recover financially. They cannot qualify for credit cards or loans. They never can own a new car or a home again. These assumptions are not accurate.
In many cases, Chapter 7 is the first step on the road to financial wellbeing. Getting rid of debts that you cannot afford to pay allows you to focus on improving your finances. Many people use the information and tools provided in their mandatory bankruptcy courses to learn how to budget, manage debt effectively, and save money. Let’s look more closely at life after Chapter 7, including credit cards and renting.
There Is Life After Chapter 7 Bankruptcy
The first thing to remember is that bankruptcy is a debt relief process. Therefore, you are likely to feel a great sense of relief after you complete your bankruptcy case. Creditors and debt collectors are no longer harassing you to pay debts. You don’t need to worry about checking the mail or answering the phone because creditors nor debt collectors are chasing you. However, you want to focus on creating and living within a budget. Budgeting is essential after Chapter 7. Wise money management helps you take full advantage of your Chapter 7 bankruptcy discharge. Budgeting helps you avoid future debt problems. Some of the advantages of budgeting include:
- Allows you to see where your money is going each month.
- Improves decision making regarding how to spend your money.
- Gives you more control over your money.
- Allows you to identify financial goals and develop a strategy for achieving your goals.
- Highlights overspending or areas of your budget that need trimming.
- Enables you to plan more effectively for expected and unexpected costs.
- Allows you to make informed decisions about incurring debt.
- Provides early warning of potential financial problems so you can make adjustments before problems arise.
Budgeting enables you to have the things that you desire by helping you save money. By controlling your finances, you save money for the things that you genuinely want. Choose a budgeting method that works for you and stick with it. However, in your life after Chapter 7, you also need to focus on improving your credit score in addition to budgeting and money management.
Credit After Bankruptcy – You Will Have Credit Again
While it is true that your credit score decreases when you file for bankruptcy relief, the decrease is temporary. The decrease in your credit score depends on your credit score when filing for Chapter 7. If your credit score is good, you may see a more substantial decrease in your credit score compared to someone whose credit score is much lower. By the time many people file for Chapter 7, their credit scores are already lower because of late payments and debt collections.
The good news is that many Chapter 7 debtors see an increase in their credit scores in as little as a year after filing bankruptcy. Each case is different, but there are some things you can do to help improve your credit score after bankruptcy.
Tips for Improving Credit Scores After Chapter 7
Steps you can take to improve your credit scores after Chapter 7 include:
1) Review credit reports and correct errors.
All accounts discharged in bankruptcy should have a zero balance. In most cases, the accounts note that they were included in a bankruptcy. If an account that was discharged in your Chapter 7 is not correct, notify the creditor and the credit reporting agencies immediately. One of the benefits of discharging debts in Chapter 7 is that the accounts are closed, the balances owed are zero, and the company cannot report failure to make payments. You can get free copies of your credit reports every 12 months. It is wise to review your credit reports each year and correct mistakes that hurt your score immediately.
2) Make all future debt payments on time.
Pay all debt payments on time. Late and missed payments hurt your credit score quickly and substantially.
3) Apply for a secured credit card.
Secured credit cards can be useful for improving credit after Chapter 7. You must place a security deposit with the company to cover your charges, in case you default on payments. Use the card for small purchases and make all payments on time. However, before applying for a secured credit card, make sure that the company reports the account to the credit reporting agencies. If not, applying for the card will not help you improve your credit scores.
4) Apply for store credit cards.
When you are financially stable, apply for store credit cards. These credit cards are generally easier to get than a major credit card. Beware, the interest rate may be high for a few years. It is best to charge small amounts and pay off those amounts quickly to avoid paying high interest rates. The purpose is not to use credit, but to pay it off timely to improve your credit scores.
5) Apply for installment loans.
A mix of credit improves your credit score. After determining you have the funds in your monthly budget to afford an installment loan, consider a furniture loan or other installment loan. Be cautious when borrowing money after filing bankruptcy. You need to ensure you can afford the payments, or you could risk undoing the improvements you have worked so hard to make.
6) Make sure you have an emergency fund.
When you create a budget, make sure that you contribute to an emergency fund each month. You may need to begin with a small amount, but remember to increase that amount as your finances improve. Having an emergency fund helps avoid incurring debt for unexpected expenses. USA.gov has information about credit reports and resources if you believe your legal rights have been violated. You may begin receiving offers for credit within months after completing your Chapter 7 case. Always remember to shop around for the lowest interest rate and best terms. However, avoid credit until you know you can afford the payments. Rushing into debt to improve credit scores before you are ready could result in low credit scores for much longer than is necessary.
NOTE: You can do all of the above things yourself. You do not need a company to help you improve your credit score. Offers to improve your credit score after bankruptcy are often scams. Some companies may use unethical or even illegal ways to improve your score. It is best to put in the work and time to improve your credit rating after Chapter 7 instead of trying to take a short cut.
Renting After Bankruptcy – What Are My Chances of Renting After Bankruptcy?
When you file Chapter 7, the bankruptcy filing appears on your credit report for ten years. Most landlords check credit reports before approving a rental application. Landlords view bankruptcy filings in different ways.
Some landlords may be hesitant to rent to someone who filed Chapter 7. However, other landlords may view the Chapter 7 case as getting rid of your debts, thereby making it more likely you can afford rent payments. Therefore, renting after Chapter 7 may be more difficult, but it is not impossible.
Ways to Improve Your Chances of Renting After Chapter 7
- You may find that it is easier to rent an apartment than a house after Chapter 7.
- Some landlords may require a higher security deposit. Be prepared for this expense.
- Explain your situation. Most people file Chapter 7 because of events outside of their control. Write a letter to the landlord explaining what happened. The landlord may consider mitigating factors that led to the Chapter 7 filing.
- Highlight your employment history, positive rental history, and available income as reasons why the landlord should approve your rental application.
- Make sure that recent credit history reflects responsible money management. You may not be able to undo past financial problems, but highlight that you have not had any recent issues with credit.
- Work with an individual instead of a company. Companies may have strict policies that managers must follow. Individual landlords make decisions on a case-by-case basis, which is better for you.
- Have written references from your employer and previous landlords to submit with your rental application. Personal references can also be useful, but could be given less weight compared to professional references.
You Can Thrive After Filing a Chapter 7 Bankruptcy Case
Deciding to file Chapter 7 can be a complicated process. You must weigh many options. However, if you decide filing Chapter 7 is right for you, there is one thing to remember. You will survive Chapter 7, but you can also thrive.
Chapter 7 gives you a fresh start. You can be free of debts in as little as six months after filing for bankruptcy relief. The fresh start from filing Chapter 7 allows you to focus on rebuilding your finances for a healthier financial future. With time and dedication, you can rebuild your credit and rent a home after Chapter 7.
Do You Need Bankruptcy Help?
If you are struggling to pay debts, Chapter 7 might help. Try our free Chapter 7 calculator to see if you qualify for Chapter 7. You can also read our Chapter 7 Bankruptcy Guide for more information about filing Chapter 7. If you still have questions or need help finding a Chapter 7 bankruptcy attorney near you, please contact Ascend. Call or text us at 833-272-3631 to explore bankruptcy and other debt-relief options.