How to recover from bankruptcy

August 02, 2018
If you are struggling with debt, bankruptcy may be the only option available to you that will allow you to recover financially.
How to recover from bankruptcy

Yes, declaring bankruptcy will hurt your credit in the short term. You will not be able to get loans or credit cards like you could before you went bankrupt. (However, you will still be able to borrow money if you know what kind of loans you can apply for).

Bankruptcy will give you a chance to change your money management and budgeting plans so that, in the long term, you can enjoy healthier personal finances. Here are some steps to take that can help you speed up your recovery after bankruptcy.

Start a “necessities budget” right away

You now have a chance to organize your budget so that it fits your needs and lifestyle. The first step in doing this is to make sure that you have covered all your necessities. Necessities are things like food, housing, clothing, transportation, and utilities. Make sure that your income covers the costs for these things with money left over each month. You may need to make changes to do this. You might need to sell a car and getting a cheaper one (or use public transportation). You may need to change the way you shop for food, clothes, and so on.

Create a buffer for bills

Ideally, you will eventually be able to keep your budget a month ahead. This means, for example, that you will cover bills and necessities for April with your income from March. Then, if something comes up and you have less income or unexpected expenses one month, you still have a buffer so that it does not cause financial stress. This strategy may require saving a little bit each month for the first few months after bankruptcy in order to create the necessary buffer.

Plan for unexpected expenses

It will be hard to get a loan or credit card, except for a secured credit card, after you become bankrupt. One option for borrowing money is to get an online personal loan. These loans require a bank statement and pay stub, but not a credit check. This means your poor recent credit history will not disqualify you from getting approved for a loan. If you have the buffer month in your budget, then you can pay off the loan easily and get back to your post-bankruptcy budget quickly.

Start repairing your credit

It may take a long time after bankruptcy, but you can get started right away by getting a secured credit card. This card requires a security deposit. Once you have made the deposit, you can start using the card. You should make small purchases and pay them off immediately. Eventually, this will help you improve your credit score.

Budget for entertainment as well

Even with all the budgeting for necessities and creating a buffer zone in your budget, you should also use some money for entertainment. One way to be responsible with your entertainment spending is to make it part of your budget. You shouldn’t spend a significant amount on entertainment, but you should make sure that you have money set aside so that you can enjoy yourself while you work to improve your finances.