After navigating through the bankruptcy process, a common question to ask is, “what happens now?” You’ve gone through months (or years) of financial struggle and stress, worked through the courts, had your debts paid off or discharged – and now you are ready to embark on your fresh start and your new life.
However, it is natural to be concerned about the future. Will you end up in trouble again? What money management strategies can you put in place to ensure that you stay on the road to financial health? This article will talk about some proactive, real-world ways to stay away from the bankruptcy court.
The first thing you’ll want to do is store your bankruptcy documentation in a safe place. Although this is not a financial strategy, it will help you with easy reference should a future lender ask for it. You’ll also want to keep it on hand in case a creditor comes back around looking for payment. You’ll be able to produce proof that you no longer have an obligation to them.
Once your paperwork is filed away, try these money management tips.
Take a Break
It may be surprising to you that many lenders are now willing to offer you loans and credit cards. This is because they realize you now have more disposable income since you have no debt. You’ve also probably heard that you need credit to build credit. But seeing as you have just gotten free of debt, give yourself some time before applying for that new credit card. Practice living without having a line of credit.
Any loan or credit card offered to you at this time is likely to have a high-interest rate, so only apply if you really need it – and start with a low-balance, secured credit card.
Honestly Evaluate your Situation
From a position of financial safety, you can now look back and honestly assess what got you in trouble in the first place. Was it a temporary problem, such as the loss of a job? Or were your money management woes caused by poor budgeting and unrealistic spending? Understanding the real issues behind bankruptcy can help you restructure your life to avoid a reoccurrence.
Whether a new job or a new budget, the solution will fit the problem.
Establish Local Relationships
When it does come time to get a small loan, line of credit, or car loan, walk into a small local bank and meet with a loan officer. Describe the reasons behind your bankruptcy, explain your current situation, and be honest about your steps to prevent a recurrence of financial problems.
When you can have a conversation and develop a relationship, you may find it easier to secure your loan.
Keep an Eye on Your Credit Report
Your goal after bankruptcy is to repair your credit and raise your credit score. The higher your credit score, the more advantageous of an interest rate you can demand. Be sure to check your credit report after bankruptcy to ensure that all discharged debts were removed and that no incorrect line items exist. A clean credit report is your best route back to financial freedom.
Make Sure You Are Prepared to Make Payments
Never take out another loan until you are highly confident in your ability to make the payments. While you may think an occasional late payment is no big deal, it can be catastrophic to those recently out of bankruptcy. Those who are 30 days late with a loan or card payment within three years of their filing will see their credit score plummet, typically to a level lower than it was before their bankruptcy.
Set Up a Strict Budget
It is best to document every dollar you spend, at least up to a year after your bankruptcy. By having a clear picture of where your money is being spent, you can also understand how much disposable income remains, and you can make intelligent decisions about taking on any new debt.
Before we leave this topic, we would like to offer one final piece of advice. It can be exceptionally liberating to be released from financial bondage, and you may be tempted to splurge a little bit. But your attitude after bankruptcy is the best indicator of your future financial success. Remain cautious but confident, and weigh every spending decision you make. Before long, you will find yourself in a new pattern of fiscal responsibility that will serve you well into the future.
Richard V. Ellis is a family law and bankruptcy attorney with offices in Sarasota, Florida.
