bankrupt: What You Need to Know

Bankrupt: Now What?

Bankrupt: the word is stark. Bankruptcy is one of the hardest things a person can go through. Your life is in turmoil; you are waiting to see if you can get out from under burdensome debt; you are stressed and afraid. When the proceedings are over, and you can rest assured that your debts have been discharged, you breathe a sigh of relief. That feeling of freedom can be short-lived, however, as you being to think, “What now?” How do you recover from bankruptcy?

Make Money and Save It

The first and most important priority is making money. If you have been unemployed throughout your bankruptcy proceedings, take steps immediately to get a job. It doesn’t have to be the job of your dreams; it just has to earn you a paycheck. You can always advance later on as more options open up. (Some employers may be reluctant to hire people with poor credit scores or who have bankruptcy scars on their credit report: you need to work to rebuild your credit as quickly as possible.)

When you have been declared bankrupt, your biggest concern should be to avoid being in that position ever again. This means that you need to take a look at your spending habits and create a workable budget. Do not spend more than you can afford: this means that either you do not have a credit card or that you never carry the balance from month to month. Save money and put it into a savings account for emergencies. Work to build those savings up so in the case of illness, injury, or temporary job loss, you have a cushion and do not have to rely on credit cards. The most important thing is to change your spending habits so you are living well within – or below – your means. Get a used car instead of a new one, get a one bedroom apartment instead of a two – there are hundreds of ways to cut down.

Can You Get Credit?

Many people who have been declared bankrupt are concerned that they will not have access to credit. Bankruptcy stays on your credit report for ten years, but you can rebuild it much more quickly if you adopt careful spending habits. Credit is available to most people, even those who are bankrupt. You can get a credit card but it may be secured (meaning you have to pay a deposit), have lower spending limits, and have higher rates of interest. Because you are working to rebuild your credit, this is acceptable for the time being as long as you pay your bills on time and do not use a large percentage of the available credit. This can be a great way to start building your credit.

What about a car? This is a bigger commitment – will lenders extend you credit. Yes, some will. You should keep in mind that you want a less expensive car – for example, a two year old car for less than $10,000 – so you can be sure to make the payments. There are loan companies online that specialize in bad credit loans (check these out very carefully before you commit), and credit unions sometimes give loans that traditional banks will not. You may also get financing from the dealership, but your interest rates are likely to be higher.

You can even get a mortgage after you have declared bankruptcy. Studies show that in as little as two years after your proceedings close, your bankruptcy has very little impact on getting a mortgage. Instead of relying heavily on your credit score, your ability to make a down payment and stable income will be much bigger factors.

Being bankrupt may seem like a life sentence, but you can rebuild your credit, live well, and even thrive. The important thing to remember is to change your money habits so you don’t fall into the same debt cycle again.