Chapter 14 Life after Bankruptcy

• Library: Chapter 13 Bankruptcy (Nolo) (2022 Ed.)

CHAPTER 14 Life After Bankruptcy

Rebuilding Your Credit

Create a Budget
Keep Your Credit Report Accurate
Negotiate With Current Creditors
Stabilize Your Income and Employment
Get Credit and Use It Responsibly

Attempts to Collect Discharged Debts

Postbankruptcy Discrimination

Governmental Discrimination
Nongovernmental Discrimination

Attempts to Revoke Your Discharge

Congratulations! After you receive your final discharge and your case is closed, you can get on with your life and enjoy the fresh start that bankruptcy offers. This chapter explains how to rebuild your credit and deal with problems that come up.

Rebuilding Your Credit

A bankruptcy filing can legally remain on your credit record for ten years after filing for bankruptcy, although most credit bureaus, such as Experian, remove a Chapter 13 bankruptcy filing after seven years.

What effect Chapter 13 will have on your credit score depends on several factors, including your credit before filing and how many accounts the bankruptcy discharged. According to FICO (the largest credit-scoring company in the nation), if you have good credit before bankruptcy, your score will likely plummet (at least initially) when you file.

However, if you have negative marks and a low credit score, filing for bankruptcy will probably impact your credit modestly.

Many people believe that filing for Chapter 7 bankruptcy is worse for your credit than filing for Chapter 13. FICO, however, says both types of bankruptcy have an equally negative impact. Ironically, in many cases, filing for bankruptcy will help you build good credit sooner than if you don't file. If you're struggling with more debt than you can pay, the late and missed payments will mount up, and you'll max out your available credit—and both are big negatives for your credit rating. The sooner you take steps to improve your credit, the sooner your score will recover. Plus, if you choose to complete a five-year repayment plan, the bankruptcy will remain on your credit report for only two more years.

Postbankruptcy, your strategy for rebuilding credit is simple: Stick to a budget, always pay your bills on time, and gradually take on only as much credit as you can afford to pay off each month.

RESOURCE

Resource for rebuilding credit. For more information on rebuilding your credit—including obtaining a copy of your credit file, requesting that a credit reporting agency correct mistakes, contacting creditors directly, and getting positive information into your credit file—see Credit Repair, by Amy Loftsgordon and Cara O'Neill (Nolo).

Create a Budget

The first step in rebuilding your credit is to create a budget. Making a budget will help you control impulses to overspend and help you start saving money.

Fortunately, you're required to participate in budget counseling before receiving a discharge and you can apply the tools you learn to our suggestions in this chapter.

Don't Take on Too Much Debt Too Soon

Habitual overspending can be just as hard to overcome as excessive gambling or drinking—and after the years of belt tightening required of Chapter 13, an online shopping binge can be hard to resist. If you think you might be a compulsive spender, consider avoiding new credit altogether.

Debtors Anonymous, a 12-step support program similar to Alcoholics Anonymous, has programs nationwide. If a Debtors Anonymous group or a therapist recommends that you stay out of the credit system for a while, follow that advice. Even if you don't feel you're a compulsive spender, paying as you spend could still be the way to go.

To find a Debtors Anonymous meeting close by, go to https://debtorsanonymous.org or call 781-453-2743 or 800-421-2383.

Before you try to limit expenditures, take some time to find out exactly how much you spend now. Tally up your regular expenses, like your mortgage or rent, car payments, insurance, health care costs, food, and dry cleaning. It's often helpful to track your spending for a month by writing down everything you spend each day to figure out how much you spend on things like entertainment and gifts. Don't forget to add yearly or quarterly expenses, like homeowners' insurance or car registration.

When you review your expenses and spending log, look for problem areas. Do you buy things on impulse? Are you spending more than you thought in a particular category? Also, think about changes you can make to save money, even if it's just a small amount. Then set a weekly or monthly savings goal.

Once you understand your spending habits and identify needed modifications, you're ready to make a budget. You can use one of the many budgeting apps available online. Or, if you're more traditional, write down your monthly net income—that is, the amount you bring home after taxes and other mandatory deductions. To the left, list your expenses. To the right of each item, write down the amount you spend, deposit, or pay toward the item each month. Finally, eliminate or reduce unnecessary expenditures if the total exceeds your monthly income. After finalizing your budget, stick to it.

Keep Your Credit Report Accurate

Creditors use your...