Bankruptcy can be a helpless time in a consumer’s life. The stigma attached to bankruptcy is that you lose everything and cannot get credit for 10 or more years. The truth about bankruptcy is a little more consumer-friendly but still pretty intimidating.
When you declare bankruptcy you work on a repayment program with the court which includes determining which of your assets you get to keep. In many cases, you will get to keep your home and at least one of your vehicles. Bankruptcy is more about re-structuring your debt so that you pay as much of your old debt off as possible and then put yourself back on the path to financial responsibility.
Some debt cannot be discharged in a bankruptcy such as back child support. But you will be left with debt to take care of when the bankruptcy goes through and you will have to pick up the pieces and get your financial life back together.
One of the difficult things that people have to do after a bankruptcy has been filed is to admit that some of it was their fault. Large medical bills, an unexpected divorce or the loss of a job are certainly some uncontrollable conditions that can being about bankruptcy. But when financial help is needed due to irresponsible spending, then there is no one to blame but the consumer.
When you file for bankruptcy, the government requires you to take a credit counseling course or see a credit counselor. This is something you should continue after the bankruptcy has been filed.
If you do not learn good credit habits, then you will find yourself staring at bankruptcy again in a few years. Seek out the help of a financial professional to get your spending under control.
Once the bankruptcy is filed and executed, your entire life will change. You will not have access to the credit that you used to have, you will have settlements to pay off and you will still need to pay the bills that keep your household going. That is why you need to establish a personal budget to help you spend and save money.
One of the big misconceptions about the period after filing for bankruptcy is that all spending must stop. That is not the case and it is also impossible. To survive in our society, you must spend money. The key is to develop a budget that helps you spend wisely and also helps you find money to save on a regular basis.
Rebuilding Your Credit
Should you be concerned about your credit right after the bankruptcy is filed? Yes, you should. At some point in the future, you will need credit to buy a vehicle, rent an apartment or get car insurance. A bankruptcy does not mean that your credit is frozen forever. It just means that you are on a court-appointed payment plan for the next 10 years.
Rebuilding your credit after a bankruptcy is a slow and deliberate process. The first thing you should learn is to seek out your own credit opportunities and not fall prey to con artists and criminals. In other words, do not sign anything until you know exactly what you are getting into.
The first step is to get a secured credit card that requires you to have money in a bank account to back up your purchases. Do not overdraw the account, but use it as often as you can. Over time and with good spending habits, the credit company will offer you a small line of credit that you can rebuild into a stronger credit rating.
One of the good habits you will want to get into after a bankruptcy is to start using cash more often. Over time, you will learn good spending habits that will help you to avoid another credit disaster. But while you are readjusting your buying patterns, you should learn to buy only what you can afford to buy with cash.
Rather than renting a computer, you should put the money you would spend on rent into a savings account and buy the computer outright after a few months. Learn to save or do without to break the dependency on credit.
Bankruptcy is not the end of the world. But it does require you to change your spending habits. If you make the right moves after a bankruptcy, you can start building good credit sooner than you think.