B.L.A.C. Reader: How do you realistically come back from a Chapter 13 bankruptcy? How do you handle it when you still have ongoing medical bills that you can’t keep up with? I have tried paying a little on each bill, but that doesn’t seem [to be] enough. How do I protect my credit when I am trying to keep things in order?
Bridgforth: Given that you had to resort to a Chapter 13 form of bankruptcy, your credit has already been blemished. It will remain on your credit report for seven years from the date the debts are paid. For the short term, don’t worry about trying to re-establish your credit rating. Identify what caused you to get into financial distress in the past, then focus on the present.
The way you realistically come back from a Chapter 13 bankruptcy is answered in two simple words: patience and discipline. I know it sounds trite and you probably don’t want to hear it, but patience is truly a virtue. More importantly, discipline does not mean you have to live in deprivation.
I applaud you for filing a Chapter 13, which means you are not walking away from your obligations. Instead, you have restructured your debt. You were likely allowed to keep your property, such as a house, and repay your debts over time. The repayment plan usually lasts three to five years and payments must be complete before the discharge is received. Another positive aspect of this type of bankruptcy is that you are protected from lawsuits, garnishments and other creditor actions while the plan is in effect.
A Chapter 13 bankruptcy puts you on a tight budget with little wiggle room for unexpected expenses, let alone luxury spending. But having a budget is an empowering tool. It helps you anticipate needs. And if you learn to stick to your budget and make payments on time, you’ll be developing healthy financial habits for the future.
The best way to free up money or to pay for unplanned items is to reduce your expenses or increase your income. Think of goods and services people need and be the one to provide them. Whatever your gifts and talents are-baking cakes and cookies, repairing computers, tailoring clothes-make it known to family, friends, neighbors and colleagues that you are available to share your talent for a reasonable fee. Or perhaps you can find a part-time job.
Regarding your ongoing medical bills, pay what you can and be sure not to promise any amount you can’t pay consistently. It is extremely helpful to communicate forthrightly with your creditors.
Think of this as a special period of time during which you can retrain yourself to handle money efficiently and responsibly. Here are some steps you can take to establish healthy financial habits:
- Begin to operate using cash or a checking account.
- If you don’t have a bank account, use a reloadable, pre-paid debit card. For example, the Green Dot card is available at retailers like CVS, Walgreens, Walmart and Kroger. Or you can obtain the card at no cost at MyGreenDot.com. Also, you can avoid reload fees by signing up for direct deposit. To have the monthly charge waived in any billing cycle, load a minimum of $1,000 on your card or make 30 purchase transactions during the month.
Work toward a monthly spending plan according to the following percentages:
- Housing-35 percent (Mortgage or rent, repairs, taxes, utilities, insurance)
- Other Living Expenses-20 percent (Groceries, eating out, vacations, entertainment, clothing)
- Transportation-15 percent (Car payments, gas, insurance, repairs, parking, bus fare)
- Debt-10 percent (Student loans, credit cards, personal loans)
- Savings-10 percent
- Tithing-10 percent
I believe we have a personal and moral responsibility to repay our debts. But unplanned events like the death of a spouse, loss of a job, disability or divorce, can disrupt the budget of even the most disciplined manager of personal finances. Living below your means and building a savings cushion is crucial to being prepared for the unexpected.
Don’t let bad credit prevent you from achieving your dreams. Be positive, proactive and prepared in your quest to prosper. Remember, bankruptcy is not the end of the world.
GLINDA BRIDGFORTH IS THE AUTHOR OF “GIRL, GET YOUR CREDIT STRAIGHT!” AND FOUNDER OF BRIDGFORTH FINANCIAL AND ASSOCIATES, LLC.