Bankruptcy protection is intended to provide a fresh financial start, but it takes work to put that fresh start to work for you, take control of your finances, and build a positive credit rating.
A University of Iowa College of Law study explored the reasons that the fresh start offered by bankruptcy fails for some people.
While the answer was complex and involved many factors, there was one consistent thread: you can't get ahead after bankruptcy if your income falls short of your expenses.
It may seem self-evident that the fresh start in bankruptcy will help only if future income is sufficient to cover future expenses, but many people don't consciously think about that.
Instead, they emerge from bankruptcy expecting that, since they're out of debt, their financial problems will simply disappear.
The fact is that failure to budget after filing bankruptcy and make sure that income exceeds expenses is the first and most dangerous mistake most bankruptcy petitioners make.
After bankruptcy, you will undoubtedly pay a higher interest rate than would an applicant with a high credit score.
It's good to be realistic, and to accept higher rates in the beginning as the price of re-establishing your credit.
You shouldn't be carrying high balances on those new credit cards, anyway, so you shouldn't be paying much (if any) interest. However, there's a difference between paying somewhat higher rates and being hit with fees, high interest rates, outrageous penalty rates and additional charges, all for the privilege of opening a credit account that will be of little use to you.
Knowing what credit cards to avoid is as important as knowing that you need to re-establish your credit.
If it seems too good to be true, it probably is.
You've probably seen advertisements in which companies offer to "erase bad credit" in one quick-fix.
You may even be directly targeted by those companies; but there is no quick fix or overnight way to rebuild your credit. In addition, these companies often recommend practices that are fraudulent and can lead to criminal charges.
Your bankruptcy will remain on your credit report for up to 10 years, and the way to outweigh that mark is to build a positive credit history.
Although most bankruptcies are the result of major life events such as serious medical problems, divorce, job loss, or death in the family, those financial problems were often aggravated by desperation efforts that made the situation worse instead of better.
Those may have included living on credit cards, using one source of credit to pay another, or borrowing from payday loan stores or other high-interest, high-fee sources that prey on those in difficult financial circumstances.
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