Filing for bankruptcy can be a bag of mixed feelings. On the one hand, you’d experience relief from the crushing debt you carried for a long time. Then you’d have a glaring red flag on your credit report stating what you’ve done. Bankruptcy might not be the end of your world, but it sure does feel like one.
Having your credit score and report take a hit can be difficult, especially if you’re broke down to your last penny. Banks, lenders, and other financial institutions might hesitate to let you borrow money or flat out refuse your application.
This is nothing to be ashamed of, and in fact, something you can still amend. Believe it or not, there are still ways to get back on your feet after filing bankruptcy. You know what they say: when you’ve hit rock bottom, the only way is up.
What is Bankruptcy?
Bankruptcy is more complicated than having no dime to spend. It is a legal proceeding for individuals or businesses that can no longer pay their outstanding debts.
The procedure starts by having the debtor file the petition, in which it states that they can no longer pay their debts. The proceedings will amount to having all the debtor’s assets evaluated, where it will pay off the portion, if not all, of their obligations to the creditor.
This will give the debtor a chance for a fresh start, albeit with a small price. Sure, the debt will go away, and the creditors get some of their money back, which will sound like a win-win situation. The catch is more than the debtor losing their entire asset. Depending on what Chapter their bankruptcy was, the record of your filing for one can stay up for years on your credit report.
There are two most common types of bankruptcy filings: Chapter 7 and Chapter 13. Chapter 7 involves the liquidation of the debtor’s assets, where it will wipe out all of their unsecured debts without having to repay the balances. Chapter 13, on the other hand, is a repayment plan. This means you must be able to pay back a portion of the amount you’ve borrowed from creditors to a Chapter 13 trustee. This type of bankruptcy will let the debtor keep their assets, but can be harder to apply for than a Chapter 7.
Getting Back on Track after Filing a Bankruptcy
Now that court proceedings are done, and you have your verdict, you will have a chance to start anew. But how would you do that? It’s no walk in the park, but at least you aren’t moping about it. What you need to do is to keep going and do your best to get yourself back on track.
Budgeting is Vital for Survival
Budgeting is probably the most important way you can handle your money, which is notably more crucial after a bankruptcy. It helps you keep track of your spending habits and makes sure you don’t use too much on unnecessary things.
It might be easy to make a comprehensive budget that will help you manage your money as you’re fixing your life after bankruptcy. However, you must also make sure that you stick to it until the very end, even after you’ve gotten yourself back up again.
Minimize Expenses
Sometimes we spend too much money to get what we want and use too much of our necessities than recommended. It’s okay if you like to treat yourself from time to time, but money is crucial after a bankruptcy. It is in your best interest that you don’t spend too much than what you earn and fall into another pit of debt.
Rebuild Your Credit
It might be especially hard to find loan options for bankrupts, considering that filing a bankruptcy would stay on your credit report for years. However, by rebuilding your credit, your score will improve despite your credit history. You can do this by paying your bills on time, and although it can be a slow process, it will ensure that your credit score will increase as days pass.
Get Hold of a Secured Credit Card
I know it might look counterproductive applying for a credit card after you just went bankrupt, but trust me, this will be beneficial to your credit score. With a secured credit card, you will have to place a deposit that becomes your credit limit. It might sound similar to how debit cards work, but secured credit cards will rebuild your credit faster.
Avoid Bad Habits and Make Good Ones
List all the bad spending habits you’ve done before your filing for bankruptcy. Habits like spending more than you make, spending the money you don’t have, applying for a loan for things you don’t need- put a stop to it. Whatever your poison is, stop drinking it and start looking for an antidote. An unexpected medical bill or a sudden loss of a job can render any individual into financial distress. However, studies have shown that most of the people who file for bankruptcy, do so due to the careless use of their financial resources. Therefore, the best way to avoid bankruptcy is to make some useful permanent lifestyle changes that will help you save for a rainy day and build up assets that will assist you after retirement.
Start developing good spending habits and discipline yourself whenever you have the urge to make unnecessary purchases. These good habits will surely get you back up in no time. Stick to your budget, pay what you are due responsibly, save money for emergencies, and spend what you make is a good rule to keep by. This will help you avoid issues in the future.
Takeaway
Bankruptcy might look like the end of the world for many. However, to others, it’s a relief from the burden of debt. Whatever way you look at it, bankruptcy still stays on your record. Despite the mark it left, you can still regain back what you lost. You need to be aware of the steps you must take and develop habits that will lead you to a more financially secure future.
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