So you've declared bankruptcy. What should I do next? At first glance, you have a lot of ideas for how to start over. You have paid off almost all of your debts and, at least from a financial point of view, you are a new person. But keep in mind that you had to pay a lot of money to file for bankruptcy. In exchange for getting rid of your debts and stopping your creditors from trying to get them back, your credit score took a big hit. Your credit score probably wasn't that good to begin with, so it won't be easy to get it back to where it was before this hit.
So, first, the bad news:
- Your credit report will show the bankruptcy for up to 10 years.
- Lenders would think you are a bad risk because at least some of your old debts have been legally forgiven.
Because of this, you might not be able to get a loan or credit card for a while after filing for bankruptcy.
- And if you're lucky enough to get approved for credit, the interest rates and fees will be very high.
The bright side? Think good thoughts. It is a good thing that you can't get any more credit. You went bankrupt because you ran out of credits. They won't have any trouble getting you back there...again. Now, here are some ways to get back on your feet after going bankrupt:
Live a frugal life: It's just common sense that you should live a simpler life that isn't bloated with extras. In other words, don't waste money. If you filed under Chapter 13, you have agreed to a plan to pay back some of your debts over time. Chapter 13 is meant to let you reorganise your debts so that you can keep your properties and other assets as long as you agree to pay back your debts for a certain number of years. So, the bottom line is that you still owe money to your creditors, even though you may only pay a small amount of the total debt.
Most of the time, bankruptcy courts will give you three to five years to pay off your debts. During this time, the court gives you only a set amount to live on while a court-appointed trustee gives the rest to your creditors each month. How does this make you feel?
As we've already said, it means a simple way of life. No luxuries at all, except for those that the law allows. And sometimes, but not often, it may also mean changing your basic costs, like how much you pay each month for a place to live and food. You might even have to move to a cheaper apartment or a less nice part of town so that you can get by on the money the court gives you. It should be enough to say that getting new credit will be hard, if not impossible. So you can't get a new credit card or a loan for a car. Or at least the easiest way to do it. Also, you can't take on a new debt without permission from the court, and getting that will make your life a lot more complicated.
So what do you do if you don't have much money to get you through the hard times ahead? Really, it's easy: just make a budget. Even better, keep a close eye on your spending for three months and then make a budget based on what you've learned about how you spend. Greg McBride, CFA, a senior financial analyst for Bankrate.com, says the same thing:
Keep track of your spending for three months to get an idea of how much you're spending and where that money is going. Then, he says, make a budget that is reasonable and fits your monthly income. "The first step to saving money is to put limits on how much you spend. And once you have a plan, stick to it. The most important part is that.
