A bankruptcy is intended to give debtors a fresh start. It does that by wiping out some or all of your debt. Once you receive your discharge, you should take steps to take full advantage of your fresh start.
Pay your nondischargeable debts
Certain debts cannot be discharged in a bankruptcy. These include child support and alimony arrearages, student loan debt, most delinquent taxes, certain fines and penalties, criminal restitution, and civil damage judgments arising from a drunk driving accident. If you owe any of those debts before you file bankruptcy, you will still owe them after you receive your bankruptcy discharge. By wiping out your other debts in bankruptcy, however, you may more money available that you can use to pay your nondischargeable debts.
You are also still obligated to pay debt for which you signed a legally valid reaffirmation agreement, even if that debt would otherwise be dischargeable.
Pay Your Discharged Debt
Even though you are under no legal obligation to do so, you may voluntarily repay any debts that have been discharged through your bankruptcy. You might wish to repay such debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.
Creditor Attempts to Collect a Debt That Was Discharged
If a creditor attempts to collect a discharged debt you should provide the creditor a copy of your discharge and inform them in writing that the debt was discharged through your bankruptcy. If the creditor files a lawsuit on a discharged debt you should immediately inform the court that the debt was legally discharged. A judgement entered on a discharged debt can be voided but this can be costly and require the services of an attorney.
Rehabilitate your credit
Once your debts have been discharged, you should make a plan to improve your credit score so that, in the future, you will be able to obtain credit on favorable terms. Since a bankruptcy shows up on a credit report for ten years, creditors will be able to take your bankruptcy into account when deciding whether, and on what terms, to extend credit to you during that time. You can nevertheless improve your credit score well before the ten years passes.
- Get a credit card. The best way to improve your credit score is to use credit responsibly. The easiest way to obtain new credit is to get a credit card, but you should do so only if you can pay the card in full at the end of every month. Avoid charging more than you can pay so that you avoid the trap of unmanageable debt. Paying the balance in full each month not only avoids interest charges, it proves to your creditors that you can be trusted to use credit responsibly. That will soon be reflected in an improved credit score. Be careful, though, to avoid the cards with high interest rates and annual fees that are often offered to people who have recently received a bankruptcy discharge.
- Set up automatic payments. To make sure that you don’t miss payments that come due, consider setting up automatic payment deductions from your bank account. You won’t forget to make payments if you arrange to have them deducted from your bank account on their due date.
- Review your credit report. You are entitled to a free copy of your credit report each year from each credit reporting bureau. You can usually request the report online. Get your credit reports and review them carefully. If you find any errors that could hurt your credit score, report them to the credit bureau so that they can be investigated and corrected.
- Live within your budget. If you filed a chapter 13 plan, you probably got used to living within a budget. Keep doing it. If you received your discharge in a chapter 7 bankruptcy, make a budget and stick to it. It is fine to use credit after a bankruptcy — in fact, using credit responsibly is the best way to improve your credit score — but your credit score will only get worse if you again find yourself with unmanageable debt.
Bankruptcy is complex and many answers depend upon your specific situation. If you still have questions you can schedule a free consultation with a bankruptcy attorney.