Is Bankruptcy Really a Fresh Start?

Congress enacted the Bankruptcy Code for just this purpose. This legal debt relief program eliminates burdensome unsecured debts, like credit card bills, and gives debtors a chance to catch up on past-due secured debt payments, like home mortgage payments. However, bankruptcy isn’t a magic wand that reverses financial fortunes. Unless debtors have an exit plan, like the plan outlined below, and stick to that plan, they usually end up in bankruptcy court again.

Unlike a non-lawyer bankruptcy petition preparer, a Chicago bankruptcy lawyer does much more than fill out forms. An experienced lawyer advocates for debtors when (not if) things go sideways during the bankruptcy process. Twists and turns are inevitable on the road to a fresh start. A Chicago bankruptcy lawyer gets debtors back to the starting line, and gives them the tools they need to keep moving forward.

Borrow Money

Ironically, the first step toward full bankruptcy recovery is the same step that prompted many people to file bankruptcy in the first place.

People must borrow money to rebuild their credit scores. A FICO or other score doesn’t measure the ability to pay cash for everything. It measures the ability to responsibly use credit.

A secured credit card is usually a good start. Many companies happily extend credit card offers to former debtors after they receive discharge orders. Because the loans are high-risk loans, the banks charge higher interest rates and make more money.

We recommend a card with a very low credit limit, perhaps $1,000 at the most. Use the card every month and make a payment before the due date every month. Leaving a small remaining balance is usually a good idea. Banks make more favorable reports when they can charge interest on an unpaid balance and make money.

This strategy noticeably raises credit scores every month. Furthermore, after about six months of on-time payments, many former debtors effectively erase the bankruptcy filing off their records. More on that below.

A card giveth, and a card taketh away. One missed payment usually undoes at least three or four months of good financial stewardship.

Change Your Balance Sheet

A small financial reserve is critical in these cases. The financial storms that cause bankruptcy, such as divorce and job loss, usually occur again. Unless debtors are prepared, they quickly sink below the waves. The good news is that most banks only care about the last ninety or one hundred-twenty days.

A few hundred dollars in a savings account could be the difference between making bills, like credit card bills, and missing them. A financial reserve is rather easy to build after Chapter 13. Instead of making trustee debt consolidation payments, send that money to a savings account.

When it comes to secured debts, make thirteen payments a month instead of twelve. Most people never miss the extra few dollars. Then, when a storm hits, the bank often defers payments as part of goodwill. Alternatively, these debtors could miss a payment, or even two, without compromising their credit score progress.

On a related note, when former debtors borrow money, they should be upfront about their past financial problems. A little honesty goes a long way.

 Connect With a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

law.cornell.edu/uscode/text/11