How to Rebuild Financially After Bankruptcy
Rebuilding your finances after declaring bankruptcy is a long journey. Read on to see how to financially rebuild after you’ve filed.
Updated on May 04 2020
Bankruptcy may be one of the scariest financial situations an individual may find themselves in. It’s often the last step when it comes to crippling debt. Rebuilding your finances after declaring bankruptcy is a long journey. Read on to see how to financially rebuild after you’ve filed.
1. Set up—and religiously follow—a budget starting today
There are many reasons why someone may file for bankruptcy and bad budgeting is one of the biggest. This is a time to meticulously go over your finances. Know exactly how much is coming in and exactly how much is going out. Determine how much you need to save, make sure you know the difference between discretionary and non-discretionary expenses, and see where you’ve been overspending in the past. Most bankruptcies come from consumer debt, so it’s essential you get a firm grasp on budgeting so you don’t make the same mistakes again.
2. Create an emergency fund
In case of a catastrophic financial event, you most likely won’t be able to take out a line of credit to hold you over. While this isn’t recommended in any case, it is a reality that many Americans must put unexpected finances on credit cards. Those who filed for bankruptcy should generally have more in their emergency fund than those who haven’t because they will be unable to use loans in a financial emergency. If you find yourself having trouble putting money into savings instead of spending it, automate your savings. Contact your bank and set up an automatic withdrawal from your checking account to your savings account every time you get paid so that money is already in savings and you won’t be as tempted to spend it.
3. Use cash
Cash is king and using it for as many of your expenses as possible is most advisable while you are rebuilding financially. Pay your bills automatically through your bank and then use cash for any other kind of spend like groceries and miscellaneous expenses. Even using a debit card can influence overspending. Setting aside a set amount of cash and taking only that with you when you are out will keep you from going over budget.
4. Rebuild your credit
You may find yourself wondering why you need to rebuild your credit again if you can save and use cash to pay your bills. However, finding a home to rent, getting a mortgage, or even taking out a car loan can be almost impossible if you filed for bankruptcy and your credit has tanked. Once you have a good grasp of your finances, it’s time to start taking steps to rebuild your credit. Check your credit report and go over every line. You want to make sure there are no errors in it. Then, consider opening a secured credit card. Secured credit cards prevent overspending because, in order to open one up, you need to deposit cash first. That money is then used as your credit line. It’s a way to reap the benefits of a credit card without the added risk of going into more debt.
5. Find a financial advisor
After you’ve started rebuilding your credit, speaking with a financial advisor will be a great way to stay on top of your finances. They’ll be able to go over your financial goals including retirement planning and also make sure you are on track to rebuilding your finances. A financial advisor can help to ensure you are staying on track and a fiduciary advisor will look for investment opportunities that are low-risk.
Bankruptcy is scary, but it is possible to come out of it financially secure.
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