How to Start Over After Filing for Bankruptcy

How to Start Over After Filing for Bankruptcy

Filing bankruptcy and erasing your debts gives you the opportunity to start over and rebuild your financial life. The problem, however, that most people have after their debt has been discharged is figuring out how to successfully remain debt-free.

To Remain Debt-Free, You’ll Need to Commit to a Financially Healthy Lifestyle. This means:

  • Examining the reasons that led you into bankruptcy in the first place. For some individuals, it was an unexpected medical emergency that saddled them with debt they couldn’t repay. For others, their bankruptcy was the result of years of acquiring unmanageable debt. If you fall into the second category, you should consider tracking your income and expenses to get a picture of what, when and how you acquired your debt. Look for patterns that can help explain your spending behavior.
  • Living within your means. Always earn more money than you spend. Start by establishing a realistic budget and tracking your monthly income and expenses. For budgeting, use what you learned from the required credit counseling when filing bankruptcy. For additional budgeting help, use the free online tools from Mint (https://www.mint.com) or consult a credible non-profit credit counseling agency, which can be found through the National Foundation for Credit Counseling (https://www.nfcc.org) or the Financial Counseling Association of America (http://fcaa.org).
  • Establishing an emergency fund. This way when emergencies happen, you can pay for them, preferably with cash. Research by the Urban Institute (https://www.urban.org/research/publication/thriving-residents-thriving-cities-family-financial-security-matters-cities) shows that having as little as $250.00 in savings for unexpected expenses can prevent individuals and families from using high-interest rate credit cards or payday loans, which can start a new debt spiral. Having a savings cushion is critical for coping with the three most common financial hardships: losing a job, having income drop by half or experiencing a major health issue. Remember, small savings mean considerable advantages for you remaining debt-free.
  • Paying with your debit card or cash whenever possible. This is another strategy for avoiding credit card debit.
  • Automating your financial life. Pay your bills automatically, in full and on-time, through online bill pay. Also, establish your emergency fund by automatically transferring a percentage of your paycheck to a separate savings account.
  • Improving your credit score. After you have established your emergency fund and paid your current bills in full and on-time, you’re ready to obtain new credit. This is one of the most important steps for improving your credit score, but unfortunately, may be one of the most difficult. From the lenders’ perspective, you are a risk because of your past bankruptcy and pre-bankruptcy payment histories. Lenders will need assurance they won’t lose money by lending to you.

Here are two ways to satisfy lenders while obtaining credit and improving your credit score:

  • Apply for a secured loan. Secured loans are often offered by credit unions or community banks and come in two varieties. The first secured loan involves borrowing against money you already have on deposit. But, you won’t be able to access that money while you are paying off your loan. It’s held as collateral. The second secured loan, while it doesn’t require cash up-front, you won’t have access to the money loaned to you until after you have made all of the payments. In return, the financial institution agrees to vouch for you and provide a report about your payment history to the credit bureaus.
  • Apply for a secured credit card. Secured credit cards require you to provide the money up-front, meaning they are backed by the deposit you pay, and your credit limit is typically the amount of your deposit. While not good long-term because of annual fees and high interest rates, they can be used to repair your credit until you become eligible for a better, unsecured credit card.

Remember, there is life after filing bankruptcy. You can start over and I can help. Please contact me to schedule an appointment.