Choosing to file for bankruptcy is a huge decision, but for almost 795,000 individuals and businesses in 2016 alone, the choice was clear and necessary. If you are one of the thousands of individuals who have had to file, you may wonder if your life will ever be the same.
Once the arduous bankruptcy process is complete, you face the task of rebuilding your credit, your life, your financial future, and your emotional well-being in the weeks and months and years ahead. It is easy to become overwhelmed, frustrated, and discouraged. One of the first things you should remind yourself is that you are not alone and that people from all walks of life and at all levels of income have found themselves in a situation that mirrors your own. While you may currently feel embarrassed or isolated, there are some things you should consider as you move forward.
Don’t focus on the past. Most bankruptcy filers indicate that they are filled with guilt and shame and continue to obsess about their decision long after the bankruptcy court proceedings are concluded. It is important to remember that filing for bankruptcy is a financial decision, not a moral one. Your value as an individual, as a worker, or as a parent is not diminished by your decision to file. Keep in mind that ongoing negative emotions and guilt have the potential to lead to emotional spending, which is just another path to more financial issues in the future. Don’t focus on what happened in the past. Remember that the bankruptcy has provided you with a clean financial slate, and adopting a positive outlook and a “can do” attitude will help you have a fresh emotional slate, as well.
But don’t ignore the past. In the weeks following your bankruptcy, it is advisable to sit down with a credit counselor or a trusted advisor to figure out what habits or life situations led to your bankruptcy. Was it medical debt that could not be avoided? Did you lack an awareness of increasing credit card debt? Are you an emotional spender or impulse buyer? While you can’t change the past, understanding yourself and your lifestyle choices will help you plan more effectively for the future. Set a household or personal budget and resolve to stick to it, then move full steam ahead.
Establish an emergency fund. Once you have created a realistic budget that accounts for all of your fixed and variable expenses, be sure to pay all of your bills on time every month. As part of that new budget, you should contribute to a newly-established that will help you prepare for your future. If you are not used to saving, it’s always advisable to have funds automatically withdrawn from your account and put into that savings account to ensure that you are regularly and faithfully setting something aside.
Remember that your household budget provides a guideline for spending your monthly income, but the emergency fund will protect you from unanticipated emergencies like job loss, medical or dental bills, or even costly home or automobile repairs. A rule of thumb for most adults is to have three to six months of living expenses set aside in your emergency fund, but financial expert, Suze Orman, states that amount may not be enough. “You need as much money in the bank that makes you feel secure,” she indicates. “Don’t go fooling yourself, ‘It’s okay, I can charge on a credit card, I can do this.’ You should have at least eight months. Not six months, not three months, I’d like to see you have eight months to one year.”
Rebuild your credit with secured credit. Obtaining a secured credit card is key to help you build your post-bankruptcy credit. Secured cards typically have lower credit limits since you must provide a deposit which acts as the credit limit. While these cards have higher than average interest rates, they are important for re-establishing a positive credit history. Like other credit cards, secured credit cards report to credit bureaus, so paying the bill on time every month will help you move toward obtaining unsecured credit cards sometime in the future. Use these cards as frugally and carefully as possible, and do not apply for a second card in less than an eight-month period.
Monitor your credit score regularly. After your bankruptcy, you may receive a great deal of information from companies and programs that claim to help you “fix your credit.” Remember that no one, not even credit repair companies, can remove anything from your credit report unless it is inaccurate. Instead, monitor your credit score regularly and focus your time and effort on developing healthy, purposeful spending habits.
Do you have suggestions for those experience post-bankruptcy blues? Feel free to share your thoughts here.