For many of our clients, there is often a combination of fear, anxiety, stress and even embarrassment when it comes to facing their financial circumstances, and ultimately making the decision to move forward with filing for bankruptcy. For the many clients that we have been successfully able to discharge their debts by way of either a Chapter 7 or a Chapter 13 bankruptcy, they are given a fresh new start of their finances and hopefully now have the tools to ensure that they are in complete control over their financial futures.

At Modesto Bankruptcy Attorneys, we go the extra effort to provide support for our clients after they received their bankruptcy discharge. Specifically, we have several suggestions for clients to follow to allow them to build their credit back as quickly as possible, avoiding common actions that lead people into financial trouble, and ultimately offering the additional solutions if they find themselves back in a difficult financial time. Below, we will discuss some of the best ways to ensure that you make the best out of your new financial start and your options if dealing with difficult financial times.

  1. Budget

Potentially the single most important area to understand and have under control is your budget. A budget allows you to clearly breakdown your income and expenses, ensuring that you either have money left over monthly or if you are going into debt every month. We find that many of our client’s never set a budget and with the dependence on credit cards and store financing options, it gets easy to overspend.

When setting your budget, you will generally have certain recurring figures. The first fixed figure will be your monthly income. It is important to factor in that your monthly income should be your income less your tax withholdings. This is usually not a problem for W-2 employee, as your employer will take out your taxes from each paycheck, leaving you with your net take home pay. For self-employed individuals, your income will tend to very and you are responsible for withholding your own taxes. In this situation, we recommend taking a 2 to 3 year average monthly income if your business has been open long enough, or else consult a CPA to help estimate your income and tax obligations.

Once your monthly take home pay has been determined, you will now deduct certain recurring expenses against that amount to determine if you have any surplus remaining. The most common recurring expenses are mortgage/rental payments, utilities (gas, electricity, sewer, internet), auto loan payments, food, auto insurance, food, gas, and student loans repayments. If applicable, these expenses will generally stay the same, which makes it easy to calculate your budget. You should also consider and attempt to budget for expenses that come up less regularly, such as auto maintenance, home maintenance, health expenses, household items being replaced, and even yearly gifts such as birthday, valentine, anniversary, etc. If you have any remaining income after accounting for your expenses, then you are in a great place to save monthly.

The above budget does not consider variable expenses such as credit cards. Credit card payments are the most common variable expense that can lead to an individual finding themselves in debt. If after conducting your budget analysis, you can determine that you have a surplus after accounting for your expenses, then you are in a great position towards rebuilding your financial future. Having a clear illustration as to how much extra or how much debt you are putting yourself into each month will provide you with the knowledge to take actions to continue to build your wealth or take actions to help avoid future debt from consuming your life.

  1. Rebuilding Your Credit

In the Unites States, credit is a key requirement for individuals in order to obtain a mortgage, auto loan, personal loan or a credit card. A strong credit history and score allows you to get the best terms possible, ultimately saving you money in interest. Unfortunately, prior to filing for bankruptcy, it is likely that your credit score has already taken a significant negative hit, and further, your bankruptcy will continue to impact your credit for several years.

How long does a bankruptcy stay on your credit report?

The amount of time that your bankruptcy will stay on your credit report varies based on the type of bankruptcy that you filed. For those that filed for a Chapter 7 Bankruptcy, the bankruptcy will remain on their credit report for up to ten (10) years. For those that filed for a Chapter 13 Bankruptcy, the bankruptcy will remain on their credit report for up to seven (7) years. As long as the bankruptcy continues to show up on your credit report, it will impact your credit scores until it is permanently removed. However, over time, the impact on your credit scores will be less and less and there are options to help build your credit up faster.

How to begin to rebuild your credit score?

Seven to ten years is a long time to wait for your credit to rebuild. However, credit score is a fluid item and goes up or down regularly. This is great news because even though the bankruptcy will be on your credit for a longer period, you are able to rapidly increase your score each month post-bankruptcy. Fortunately, you can take the following steps to help rebuild your credit faster:

  1. Review Your Credit Reports – It is critical that you keep up to date and regularly review your credit reports for any irregularities or issues that may need to be addressed. Make sure that all debts that were discharged from your bankruptcy are updated on your reports and show zero balance and state that the debt was discharged. Further, verify that all accounts that show up on your report belong to you, confirm the payment status and open and close dates. If you find any issues or irregularities, report them to the three main credit reporting agencies, TransUnion, Equifax and Experian.

  1. Make Your Regular Payments – It is important that you never miss a payment on any open accounts that are reported to the credit agencies. This means all mortgage, auto loan or other debts must be paid each month, in full. On time and missed/late payments are reported on your credit report and have a significant impact on your overall score. Thus, continuing to never miss a payment will help rebuild your score faster.

  1. Understanding Your Credit Utilization Ratio – Your credit utilization is another key component that impact your credit score. Your credit utilization ratio is determined by calculating how much credit you are using based on how much credit you are approved for. You want to keep this ration as low as possible. It is recommended that your ratio should not exceed 30% to help rebuild your credit score faster.

  1. Get a Secured Credit Card – A secured credit card is one of the best ways to help rebuild your credit. A secured credit card is a credit card that requires a security deposit to set your credit limit. You can then spend against your limit, and as you make payments, they will be reported on your credit report to help rebuild your score. Generally, you will receive back your security deposit when you close your account. The secured credit card is generally the best option because an individual’s approval odds for an unsecured credit card with a poor credit score is low, and if approved, the terms (interest rate) are generally very unfavorable.

  1. Try To Be Added As An Authorized User On A Credit Card – If you have someone who has great credit and is willing to add you as an authorized user on their credit card, you may be able to benefit from their on time payments if they are reported to the credit agencies. In other words, their regular payments will help improve your score. However, it is important to note that their negative/missed payments can also hurt your score. Proceed with caution when choosing this option.

Options When Finding Yourself Back in Debt:

Even when practicing the above-mentioned practices, it is not uncommon for individuals to find themselves back into debt. Fortunately, there are still options available to those finding themselves under the stress and pressure of their finances once again. It is always better to take action sooner rather than later.

  1. Debt Settlement/Negotiation - Depending on your specific circumstance, you may be able to negotiation for a lower debt settlement with a lender. For example, if you have several missed payments and see no ability to catch up on your payments, it may be possible to reach out to the lender and negotiate a lower lump-sum payment or payment plan. At Modesto Bankruptcy Attorneys, we have successfully settlement debts on behalf of our clients for less than the amount owed.

  1. Loan Modification – If you find yourself behind on your mortgage, you may be able to apply for a loan modification to change the terms of your loan. A loan modification may allow you to lower your payment in exchange for a longer term, with the arrears amount due towards the end of the loan.

  1. File For Bankruptcy – As a last resort, if you are unable to get your finances back in order, you can consider filing for bankruptcy. When and what type of bankruptcy you can file for will depend on if you are filing for the same chapter of bankruptcy you previously received a discharge from or a new one.

    1. Filing for Chapter 7 Bankruptcy after a Previous Chapter 7 Discharge – You will need to wait eight (8) years before filing for another Chapter 7 Bankruptcy. The time starts from the filing date of the first Chapter 7.

    1. Filing for Chapter 13 Bankruptcy after a Previous Chapter 13 Discharge – You will need to wait two (2) years file another Chapter 13 Bankruptcy. The time starts from the filing date of the first Chapter 13.

    1. Filing for Chapter 7 Bankruptcy after a Previous Chapter 13 Discharge – If you previously received a Chapter 13 discharge and now want to file for Chapter 7, you will need to wait a period of six (6) years from date of the Chapter 13 filing. However, you will be able to file sooner if you paid your unsecured creditors in full in your Chapter 13 or if you paid at least 70% of your claims.

    1. Filing for Chapter 13 Bankruptcy after a Previous Chapter 7 Discharge – If you previously received a Chapter 7 discharge and now you want to file for Chapter 13, you will need to wait a period of four (4) years from the filing date of your Chapter 7.

At Modesto Bankruptcy Attorneys, we take pride in providing our clients the ability to gain a fresh start towards bettering their financial futures. Regardless of if this is a client’s first time filing for bankruptcy or not, our experiences attorneys are able to provide you the support, guidance and evaluate the option best suited for your needs. If you are interested in further information, please click here to schedule a free consultation.