A lot of people who are struggling with debt consider bankruptcy but find themselves scared to take the plunge. There are many reasons for this hesitation. Some are tied to the emotional reaction of what some consider an admission of financial failure, while others are worried that they won’t have anything left once the bankruptcy process plays out. But bankruptcy is not a sign of failure. It’s the opportunity to give yourself a second change in an ever-changing and difficult world.
Additionally, as we’ve discussed previously on the blog, bankruptcy exemptions can provide you with a certain amount of stability once you successfully pursue bankruptcy, and you’ll have the ability to rebuild your credit score, too. That way, you’ll be able to get back on track with your financial life and have access to the credit that you need.
Preparing to rebuild your credit score
Sure, bankruptcy will cause your credit score to take a hit, but you can be proactive in rebuilding it. Here are some ways that you can go about doing that:
- Continue to make on-time payments for existing debt: If you reaffirmed some debt or kept some after bankruptcy, you need to make sure that you’re making timely payments on them. This on-time payment history is a big part of your credit score.
- Don’t take on debt too quickly: Remember, your credit score is a snapshot of your borrowing and repayment history so that lenders can essentially determine if you’re a good investment. If you take on too much debt after completing bankruptcy, you might give the perception that you still don’t have your borrowing practices under control.
- Avoid changing jobs: Lenders are going to want to see that you have stable income before extending credit to you. This is hard to do when you’re frequently changing jobs. So, try to keep your employment as steady as possible.
- Consider a secured credit card: This is a safe way to rebuild your payment history and your credit score. Here, you use collateral to back up the credit card so that if you can’t make payments on the debt, the credit card company can turn to that collateral.
- Think about a co-signer: If you need to take out a loan, you might need to find a co-signer who is willing to go into the debt together with you. This is a big ask, so you’ll want to make sure that you have thoughtful conversations with a potential co-signer and are diligent in repaying the debt.
- Create a budget: By creating a realistic budget, you’ll be better positioned to keep yourself out of needless debt. This can also help ensure that you have the funds needed to keep current on existing debt.
- Build an emergency fund: A lot of people fall on hard times and end up turning to bankruptcy because they’re hit with an emergency and don’t have the money to cover it. This, in turn, puts them in a hole that’s difficult to climb out of. Therefore, it’s a good idea to start working on building an emergency fund so that you don’t fall into that same problem post-bankruptcy.
Do you have other bankruptcy-related concerns?
Your credit score may be just one concern that you have pertaining to bankruptcy. But there may be other aspects of the process that have you worried. If that’s the case, you could probably benefit from discussing the matter with an attorney who knows the ins and outs of this area of the law. Hopefully by doing so you’ll be able to see the true benefits of bankruptcy and how it can provide you with the debt relief and the fresh financial start that you need.