Some Post-Bankruptcy Tips

An alarming number of debtors file Chapter 7 and/or Chapter 13 more than once. The repeat bankruptcy filing rate may be as high as 50 percent, according to one study. Bankruptcy gives distressed debtors a second chance. Based on these statistics, many people squander that second chance. A bankruptcy mulligan gets them through a divorce, job loss, or other financial storm. But when, not if, the next financial storm arrives, they once again sink instead of swim.

A good Chicago bankruptcy lawyer does so much more than fill out paperwork. Attorneys know the law, and they know how to make the law work for people. So, they strategically fill out forms. Additionally, a lawyer stands up for debtors throughout this legal process. Finally, a Chicago bankruptcy lawyer gives debtors the tools they need to maximize their fresh starts.

Pay Bills On Time

Woody Allen once said that 90 percent of life is just showing up. This aphorism is partially correct in this context. Paying monthly bills on time dramatically raises FICO scores.

That’s especially true for mortgage, student loan, insurance, and other payments which are directly reported to credit bureaus.

Other monthly payments, such as rent payments, have almost the same effect. A missed or late rent payment usually leads to eviction proceedings. That kind of negative information often lowers credit scores more drastically than bankruptcy. Distressed debtors who file bankruptcy at least did something. Distressed debtors who default on obligations simply quit.

Speaking of negative entries, once unpaid medical bills and other periodic expenses are referred to debt buyers, expect a credit score to plunge. Frequently, one unpaid bill undoes months of post-bankruptcy progress. More on that below.

Use What You’ve Learned

We hinted at the common causes for bankruptcy filings above. Usually, a job loss, unexpected medical expenses, or something else beyond the debtor’s control substantially causes a Chapter 7 liquidation filing. Poor financial habits often contribute to such filings.

At the risk of sounding like your mother, limiting entertainment expenses is one of the best ways to stay in the black and avoid a subsequent Chapter 7. A lifestyle reduction is a bitter, yet necessary, pill to swallow in these cases.

Many Chapter 13 debtors continue making their monthly debt consolidation payments after their bankruptcies end. But instead of paying the trustee, they pay themselves. After just a few months, this continued payment usually builds a nice savings account.

Use Credit Responsibly

As mentioned, unpaid bills often cause credit scores to fall off cliffs. Responsible credit use builds credit gradually.

We understand that many people are afraid to borrow money after they file bankruptcy. But a credit score measures your ability to responsibly manage credit, not your ability to pay cash for everything.

A secured credit card with a low spending limit is a good start. Charge something every month and pay the balance before the due date every month. Then, debtors usually take the next step, such as buying a car or making another major purchase.

At that point, full credit recovery is around the corner. By the time the filing officially falls off a credit report six or eight years later, many people don’t even remember their filings.

 Work with a Compassionate 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. Convenient payment plans are available.