Life After 13 . . . the Fresh Start

Personal Financial Management

Now that you have successfully completed your debt-repayment plan, it is time to carefully guide and guard the security of your financial future by laying a firm foundation for that future. 

Some cornerstones for effective money management are:
Set Financial Goals - Decide what you want from your money and work to make it happen. Written, specific financial goals give you a target at which to aim and keeps your priorities clearly in mind.
Develop a New Spending Plan (Budget) - Even if you have developed the skill of budgeting during the life of your plan, don’t think that it is no longer necessary. In reality, you will always need a personal spending plan, so it is now time to revise any existing budget to fit your new circumstances. It is essential to control how your money comes and goes each month.
Develop a System of Bill Paying - Decide which bills must be paid out of each paycheck, making sure that payments are made with enough lead time to allow for posting to your account on or before the due date. Although timely bill paying is always important, it is especially so for you at this time, because any potential credit grantor will look closely at how you are paying your current obligations.
Begin or Continue a Savings Plan - Hopefully you have been able to establish a healthy saving habit while in your plan, if not, DO NOT miss this perfect opportunity to begin a savings plan. Try to save at least 10% of your take-home pay. Payroll deduction or automatic funds transfer is a convenient and safe way to ensure timely saving. Check on saving options with your bank or credit union or possibly a licensed financial planner.
Establish a Set Aside Fund - To cover periodic expenses such as home and care maintenance, gifts, school expenses, medical & dental expenses, etc., set aside a predetermined amount each month to create a “financial safety net” to cover these expenses when they occur. Plan for the unexpected!
Pay As You Go - Although you may not have credit cards now, chances are you will have at some point. Use them with great care. It is a good idea not to carry cards with you because they make it too easy to make impulse purchases. If you cannot afford to buy something, most likely you cannot afford to charge it either. If you do use a credit card, charge only what you can afford to pay in full each month.
Track Your Expenses - If you ever feel that you are losing control of your finances and that you are not staying within the limits you have set for your expenses, track your spending. In doing so, you will identify the sources of your spending leaks and can correct the problems.
Maintain Control! - Good money management is not just for hard times, it is essential for your financial well-being at all times. 

Monitor Your Credit Reports

In this mailing, you have been provided with the necessary data to present to the major credit repositories to correct your credit files. It is important for you to have your credit files updated and to receive a copy to see that all the information is correct. Please go through the process of having your credit report corrected before you apply for any new credit. Failing to do so will likely result in denial of credit and in excessive inquiries appearing on your credit report, which reflects negatively on your future credit worthiness.

The fact that you repaid your debts through a chapter 13 plan will be noted on your report for seven years from the date you filed your plan. After submitting the enclosed information to the credit bureaus, however, each account included in your plan should only indicate that it was included, discharged or paid in chapter 13. Each should also show a “O” balance with no numerical rating on the account.

Upon receiving your credit reports, check, not only to see that accounts repaid in your plan are noted as stated above, but also check all other information for accuracy. Make sure that your name, address, social security number, previous addresses and other personal information is correct and that all account information is indeed yours. It is not uncommon for mistakes to occur. Included with your reports will be instructions for disputing any inaccurate information. If you submit a dispute form to the credit reporting agency, they must initiate an investigation and remove information that cannot be verified. Please be patient in working with the credit reporting agencies because the process does take time and often requires more than one attempt. As stated in the cover letter, the trustee staff can help you with this process if the authorization form has been completed and returned in the enclosed envelope.

It is advisable to obtain a credit report annually, at least for the next few years, to ensure that negative information does not reappear on your report. Your initial credit report obtained with the enclosed form should be sent to you at no cost. Subsequent reports will cost approximately $8 for an individual report, unless you have been denied credit or if you are unemployed and seeking employment. In those instances, you may obtain a free report.

When the seven year statute of limitations has passed, you should obtain a credit report to make sure that all reference to you chapter 13 has been deleted. Although that should happen automatically, it often requires action on your part to see that it is removed.

Ultimately, ensuring the accuracy your credit history is your responsibility. Make every effort to see that the information is correct and that you exercise timely bill-paying habits and avoid excessive new credit so that all new data on your credit report is positive.

Rebuilding Credit Worthiness

As stated in the cover letter, the trustee is not encouraging you to obtain new credit, but it is likely that some form of credit use will play a part in your financial future. For that reason, there are a few points of which you should be aware.

Even though many lenders appreciate the fact that you successfully completed your chapter 13 plan and may not hold that against you for credit granting purposes, they will look very carefully at other factors. Of primary importance are the “three C’s of credit”...character, capacity and capital.

Character - Payment history is usually a major factor here. Timely payments are vital on accounts paid outside your plan, such as mortgage payments, or new accounts that have been opened during or after the completion of your plan. Given the fact that you do have a chapter 13 on your record, other factors, such as stability, take on added importance. Showing stability by working in the same job and living in the same place for a long time is quite positive.  

Capacity - Lenders look at your income, compared to your current financial obligations to determine if your credit request is affordable for you. Although lenders may calculate affordablity in different ways, here is one practical suggestion for determining your own personal debt-to-income ratio. If you stay within the “safe” range, you will not only be doing yourself a favor, but will likely be considered credit worthy in the eyes of a lender.

To find your debt-to-income ratio, first determine your monthly take-home-pay, then total all your monthly consumer debt obligations. Consumer debt includes virtually all debt, vehicles, furniture, appliances, student loans, credit card debt, etc. but does not include mortgage debt. To calculate your debt-to-income ratio, divide your take-home pay into the total of your monthly consumer debt, as illustrated below. 
                                                  20% percentage of debt
                                                 $1500) $300.00	
                                                             Take home pay     Total monthly debt

          under 15% = relax		15%-20% = caution	over 20% = DANGER

Use this formula to keep tabs on yourself. Never allow your credit obligations to get out of control. Know what you can or cannot afford...do not let someone else determine that. 

Capital - Lenders like to see that you have “invested” in yourself by having a checking and savings account and perhaps owning personal property. At least for a period of time following your discharge, they may require a larger than average down payment, so having money saved will be helpful to you in that regard, also.

It will take time to re-establish your credit. It is usually best to start very slowly and cautiously. Some credit granters like to see that you have established and successfully managed some new credit before they are willing to consider you as a customer. One way to establish new credit, especially if having a major credit card is important to you, is to obtain a secured credit card. Attached you will find a list of legitimate issuers of secured cards as identified by CardTrak, a credit card information and investigation organization.

Secured cards require your making a deposit with the issuer, which is held in an interest-bearing account. The amount of the deposit will vary, and your credit limit will based on your deposit amount. The card looks and is accepted just as any major credit card and the account activity will be recorded on your credit report. After a period of positive use and timely payments, you will likely be able to open a new unsecured account, and receive a refund of your deposit, plus the interest you have earned.

Conclusion

Take advantage of your Fresh Start and carefully plan and protect your financial future. Set your goals, develop a personal spending plan and system for timely bill paying. Save money for your security and set aside money to cover periodic expenses so you will not have to go into debt to address unexpected expenses. Remember your financial limits, and live within them.

Get your credit reports corrected and monitor them for accuracy. The fact that you successfully completed your chapter 13 plan will remain on your record for seven years from the date of filing. Make sure that the reference to your plan is removed from your report after that date.

If you do use credit, do so with great care. Credit is DEBT! Know how much you can comfortably afford before accepting any credit obligation. Also, study the terms and fine print of a credit agreement. Ask questions, be comfortable with the answers and take time to make a well-informed decision before signing any credit contract.

There are no mistakes in life, except those from which nothing is learned. Hopefully you can look back on these last few years as a positive learning experience. You have worked hard to get  where you are, and surely with what you have learned, you will maintain positive control of your 
financial future.