Bankruptcy is one the most stressful and challenging financial ordeals that may befall any person at any time. Sometimes it is the result of poor financial decisions made over a long period of time; other times it is the result of an unexpected event, such as a costly medical emergency. When asked about how he went bankrupt, Earnest Hemmingway famously stated “Gradually, then suddenly.” Whatever the reason, bankruptcy doesn’t have to be a killer. While it can’t be erased altogether, it can at least be managed.
In 2010, more than 1.5 million people filed for bankruptcy. Medical emergencies were the top-leading cause of bankruptcy. Even though bankruptcy will remain on a credit bill for up to 10 years, there are certain steps you can take during that time to fix your credit rating when the bankruptcy goes away.
Revive your Credit
The very first step seems obvious: establish new credit. Once bankruptcy has been filed and is on the books, there is not much you can do with your old credit, so the best thing to do is start anew. Getting your new credit kicked off will require a credit card which inevitably will come with a small spending limit.
The goal here is to only spend what you can afford to pay back. This may seem obvious, but many people do not obey this single rule. The point in getting a new credit card is to show you can responsibly maintain good credit standing. The second rule, which is also pretty obvious but deceptively difficult to follow, is to make payments on the card on time, every time- no ifs, ands, or buts. You will want to make sure the credit card company will report your credit to all three major credit agencies in the United States.
Digesting the Interest Rate
Now, it will be very difficult to get a credit card with rates as low as they may have been before you filed bankruptcy. So, when you see that first offer, it may be hard to swallow at first, but as your payments start coming in on time, they rates will gradually go down. This may not happen automatically, so you should proactively contact the bank to inquire about lower rates; if you are demonstrating responsible behavior, odds are that they will try to work with you. Do not use credit-repair agencies, as their services only last for a very short period of time, and never work to actually re-establish credit.
It is a good idea to take it slow when re-establishing credit, so always keep major goals in mind. Eventually, after you are comfortable with the credit card a next step may be to get a car loan. Usually, it takes at least one year of good credit to apply and receive a loan for a car. A car is a major purchase and, much like a credit card, it will be an example of good credit. Remember the golden rule of bankruptcy repair though, only take on what you can afford; it is imperative that you stay within your means and make payments in a timely manner.
Don’t Give in to Temptation
Now that you have the ball-rolling and are re-establishing good credit, you may notice that your credit limits will be rising, in some cases, at a tremendous rate. It is a good sign that your credit is getting better, but it is also a tempting predicament because the natural tendency is to spend more. If you are worried that you’ll slip into bad habits, or can’t handle the credit limit increases, contact your bank and ask them to reduce the limit or at least to put a hold on future increases. While an increased lending limit will help to raise your credit score (to a certain point), if you fall behind again you’ve taken a step backward, not forward.
Stay focused on the end goal, which is to improve your credit rating and to develop good spending habits that will prevent you from getting into credit difficulties in the future. Time will take care of the rest.
Bankruptcy has ballooned during the economic crisis of the past five years as the mountains of credit met were toppled by the forces of a weak economy and a poor labor market. Seek help from financial assistants, such as lawyers, accountants and financial advisers. Should your troubles mount, and you need the services of a Maryland car accident attorney, be sure to contact the law firm of Price Benowitz, LLP.