Congratulations! You just crossed the finish line and received that fresh start you deserve. Now that you received your discharge in bankruptcy, there are some important steps that you should take in order to ensure that your post-bankruptcy future remains bright.
1. Make a list of all your debts that were not discharged in bankruptcy.
Some debts such as child support payments, student loans, willful injuries to persons or property, and taxes are not discharged in bankruptcy. You need to make sure that you timely pay those debts in order to keep your finances in good standing.
2. Save all your bankruptcy papers.
A discharge prohibits creditors from taking any action to collect a debt post-bankruptcy. However, there may be a situation in which a creditor mistakenly attempts to collect a debt. In that case, you should provide a copy of your discharge order along with the page of your petition showing the creditor and scheduled amount. If you lose your discharge order, you can obtain another copy from the clerk of the bankruptcy court where your bankruptcy was filed. The clerk may charge you a fee for searching for your court record and for making and certifying copies.
3. Review your credit reports post-bankruptcy.
A recent Federal Trade Commission study found that 23% of consumers had errors on at least one of their three major credit reports. Within four to six months post-bankruptcy, review your credit reports to make sure all your discharged debts reflect a zero balance. You can obtain a free copy of your credit report from each of the three major credit reporting agencies (Equifax, Transunion and Experian) once per year by visiting www.annualcreditreport.com. Listed at the end of each report is a procedure to challenge any discrepancy contained therein.
4. Verify any lien balances.
Unless avoided during your bankruptcy case (your attorney should go over this during your case), liens such as mortgages, auto loans, federal and state tax notices/warrants, and mechanic’s liens survive the discharge of your debts. If you are keeping your home or car and they have liens on them, find out how much you owe and resume making your payments on time. If you fail to make timely payments, your creditors may enforce their liens by foreclosing on your home or repossessing your car. As discussed in my post on reaffirmation agreements, if you signed a reaffirmation agreement as part of your bankruptcy to keep your home or car, you will also remain personally liable for the debts.
5. Set up an emergency fund.
Many consumers do not have an emergency fund. But it is important to have enough money saved in order to be prepared for unexpected situations such as a job loss, medical expenses, car repairs, or other emergencies. A good goal would be to start with an emergency fund of $1,000. As you continue to recover financially, aim for an emergency fund of three to six months worth of household expenses.
6. Create a budget and stick to it.
Be careful with your spending and don’t buy things on credit that you cannot afford or don’t need. Try and use cash for the majority of your purchases. If you are using a credit card to help rebuild your credit, make sure that you pay the majority of the balance off each month.
7. Beginning steps to rebuild your credit.
If you feel ready, there are steps you can take to rebuild your credit. If your vehicle is older or it’s simply time to replace it, an auto loan can be a useful tool to help establish a good credit history. Be aware that you will likely pay a higher interest rate. You must also make sure to make all of your payments consistently in order to build a positive payment history.
A secured credit card (a card tied to your bank account) can be also be useful tool for rebuilding your credit. Many of the major banks offer these cards. As mentioned above, you will want to carry a small balance each month so that the card usage is reported to the credit bureaus. Another option is to be added as an authorized user to a credit card or charge account. This requires an immense amount of trust and discretion on the part of the person that is adding you as a user. However, even if you never use the card or the account, you reap the benefit of that person’s good credit history. Ultimately, keep in mind that these forms of credit are tools to be used carefully. Ignore the impulse to incur more debt than you can handle.
8. Monitor contacts by former creditors.
Your discharge carries with it a form of protection similar to the “automatic stay” you experienced when you filed. It’s referred to as the “discharge injunction.” This means that creditors are prohibited from collecting a discharged debt. If you have a creditor who is attempting to collect a discharged debt and it is clearly not a mistake (e.g., you gave them your discharge information and the creditor continues to call), please contact an attorney immediately. Keep a log of all phone calls and other attempts to contact you as well as copies of all letters you receive from the creditor. In addition to liability under the Fair Debt Collection Practices Act, the creditor may be subject to contempt sanctions for violating the discharge injunction and the court’s discharge order.
You’ve worked hard for your discharge in bankruptcy. By undertaking the 8 important steps above, you can help ensure that your financial future remains bright!
Photo “Sunset in the Park” courtesy of Jake Givens.