Bankruptcy does not relieve all debts as much as some people would like to believe. Debts not dischargeable generally include back taxes less than three years old, student loans, alimony, child support and debts incurred through fraud. Bankruptcy can be expensive even though you might think this is counter intuitive. In addition to filing costs and attorney fees, a notation that you filed for bankruptcy will remain on your credit report for seven to ten years, depending on the chapter you file. This could make it difficult to obtain any type of new loan. And, if you are able to obtain new credit, it may be hard to find a loan with affordable interest rates and repayment terms.

Bankruptcy affects more than your credit. Besides the obvious emotional issues involved with filing bankruptcy, it can also affect your ability to rent an apartment or obtain affordable insurance. In some fields, a bankruptcy could adversely affect your ability to gain employment or promotions. Bankruptcy does not change your financial habits. Filing for bankruptcy may not solve your long-term financial problems. Lifestyle changes may prove to be more beneficial.

Your ability to reestablish credit after filing bankruptcy is better than it has ever been. After you get your discharge, you will receive many solicitations from lenders offering to finance homes, vehicles and credit cards. Here are some tips on responsibly and successfully reestablishing your credit First, open a checking or savings account. Lenders may look at this to determine if you can responsibly handle money. Also apply for store and gas credit cards that you would normally pay cash. Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report.

Next, pay your utility bills and rent on time for at least a year. Find a friend or relative to cosign for you on a loan and pay it on time. Look for car dealers and mortgage brokers that attest to be “bankruptcy friendly”. Buy a used car so you do not get hit with the depreciation that occurs during the first two years of a new car purchase. Stay away from payday loans that are at high interest rates and are a “bad credit” trap. Write a letter to each credit reporting agency explaining the circumstances that lead to you filing.

Live within your means. Do not unnecessarily increase your debt to income ratio by taking on credit to purchase luxury items that you DO NOT NEED. Your payments on consumer debt should equal no more than 20% of your expendable income after costs for housing and a vehicle. Pay your reaffirmed, pre-bankruptcy debts on time.