Congratulations, you have received your bankruptcy discharge at the end of your Chapter 7 or Chapter 13 case. You are anxious to get a fresh start. What should you do next? Here are a few steps you should take to make sure you get the most from your new debt-free status:
Keep Copies of Your Bankruptcy Paperwork. It is important to keep copies of your bankruptcy petition, schedules, and order of discharge for your records. You can retrieve these documents from the court later, if you lose them. However, it may cost you and can be a bit of a hassle.
Why keep your paperwork? Although it does not happen every day, creditors have been known to try to collect on a debt that has been discharged in bankruptcy. As I tell my Philadelphia area bankruptcy clients, if any creditors try to collect after your bankruptcy, you can beat them into submission with the discharge. (Creditors can get into serious trouble for harassing you after your bankruptcy.) Moreover, as we will discuss below, you may need your paperwork to correct any issues with your credit report.
Check Your Credit Report. I suggest checking your credit report a few months after you receive your bankruptcy discharge. (It takes a while for the credit-reporting agencies to update your report.) You can get a free copy of your report once a year from each of the major agencies at www.annualcreditreport.com. Every debt discharged in your bankruptcy should be noted as “discharged in bankruptcy” or something similar. If a debt is still listed as owed, you can send a copy of your discharge to the credit-reporting agency along with the schedule (D, E, or F) that lists the debt.
Make Arrangements To Pay Any Non-dischargeable Debts. If you have non-dischargeable debts, such as student loans or certain taxes, you will need to contact the creditor to make arrangements to pay them. As to student loans, you should receive a forbearance for the time that you were in bankruptcy. There are various programs to lesson the burden of student loan payments, including income-based repayment, which you may wish to explore.
Regarding non-discharegeable income taxes, contact the IRS, state revenue department (e.g., the Pennsylvania Department of Revenue), or the local taxing authority to make payment arrangements. (The IRS will typically accept a monthly payment of around 2% of the total.) However, if you have a substantial tax debt, you may need the assistance of an attorney to work out a settlement.
Start Rebuilding Your Credit. To rebuild your credit, obtain a secured credit card with a fairly low limit. Some creditors do not require a credit check and their cards may be easier to obtain. By making small purchases on the card and paying it off every month, you can rebuild your credit rating. However, it is important to use no more than 10% to 20% of your available credit. So, if you have a limit of $500, avoid running a balance of more than $100 on the card at any one time. The purpose of this card is to rebuild your credit, so responsible use is key. I do not recommend getting multiple cards. If you are a couple, it is fine to have a separate card for each of you. However, one credit card should be enough for anyone.
Car loans can also help to rebuild your credit and are more readily available than other forms of credit after bankruptcy. However, never buy more car than you need, and be sure to shop around for the best interest rate. New cars are almost always a poor financial bargain, so think used.
Quick Note: You may receive solicitations from “credit repair” companies. They are scammers. Concentrate on rebuilding your credit systematically over time.
Update Your Will. Because your financial situation has changed, I recommend that you review your will to see if it needs to be revised. If you do not have a will, you may wish to have an attorney draft one. In my Philadelphia area bankruptcy practice, I am always happy to refer my clients to an estates attorney who can revise or draft one at a very reasonable cost.
Set up a savings plan. Even if it is only a few dollars per pay period, try to put back a little for emergencies and for retirement as soon as you are able. For many people who have been out of work or otherwise financially devastated, it can be hard to imagine being able to save again. However, even a small amount can add up over the long run.
If you take care of these few items after your bankruptcy, you will be well on your way to a better financial future.