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Rebuilding Credit Post-Bankruptcy: Discharged Debts

In our last blog in the "Bounce Back from Bankruptcy" series, we discussed updating credit reports, by eliminating errors and adding personal statements to maintain a professional demeanor with potential future creditors. From this step we move on to the process of saving money, and taking care of problems that can arise with debts that have already been discharged.

It is important to start saving money post-bankruptcy in order to apply for a secured credit card; savings will come in handy if any unexpected charges occur when paying your own bills. Having a savings account couldn't hurt to put a little money in each month. However, there is such a poor return on a savings account; you should think about contributing to a retirement plan such as a 401K, through someone such as your employer. The contribution could be matched by the employer up to a certain percentage. Also this way the money is not as easily accessible as a savings account, which will protect the funds from frivolous withdrawals.

Post-bankruptcy, it is advised to get health insurance; this is due to the fact that many people who file for bankruptcy end up doing so because of medical bills. Along with having insurance to keep bills covered and low, giving yourself a budget each month and sticking to it can further help save money in the long run.

After debts have been discharged, sometimes creditors are still looking to collect. However, this could just be due to a misunderstanding of documents crossing over in the mail, and can easily be cleared up with a phone call to the creditor. Keeping all the bankruptcy paperwork is important, so the debtors can show the creditor that a bankruptcy was filed and the debt was discharged.

Discharged debt from bankruptcy is income tax free, however, regardless if a person has discharged debt they still need to be aware of certain mistakes creditors make. A creditor may issue a debtor a 1099 for debt that was included in the bankruptcy. In that event, a debtor should contact the creditor and have them revise the 1099 or can you contact the IRS and provide them a copy of the 1099 and the notice of commencement of the bankruptcy and the order of discharge and indicate that the debt was discharged in bankruptcy case. You should also periodically check your credit report to see that all of the discharged debts have been reported as discharged.

In my next blog, we will discuss paying off remaining debts as quickly as possible.

Works Cited

Ryan, Paula Langguth. Bounce Back from Bankruptcy: A Step-by-step Guide to Getting Back on Your Financial Feet. Tracys Landing, MD: Pellingham Casper Communications, 1998. Print.

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