Whether you have lost your main source of income, become ill, or just acquired an excessive amount of debt that you cannot pay for, filing bankruptcy may be the right choice for you. Not only does it protect you from harassing creditors and collectors, but bankruptcy also gives you a clean slate so you can rebuild your financial life from scratch. Unfortunately, a successful rebuild will require making some lifestyle changes. If you are considering or have already started the process of filing bankruptcy, here are a few essential lifestyle changes you must make if you want to gain back control of your financial future.
Budget, Budget, Budget
If you are filing chapter 7 bankruptcy, all of your debts will be liquidated, meaning you will not have to pay for them. However, if you are filing chapter 13, which is known as a debt repayment plan, you will need to pay a portion of your debts.
Your attorney will help you determine which option is right for you using a means test. Making monthly payments to a bankruptcy trustee, chapter 13 allows you to pay down a portion of your debt.
No matter which type of bankruptcy you file, a budget must be designed and followed to ensure you do not lose control over your money.
Budgeting will require paying bankruptcy debts and basic living expenses only. These expenses include your rent/mortgage, utilities, insurance, taxes, and groceries. For many people, living and following a budget can be physically and emotionally distressing, but it will be beneficial for your finances.
Live Within Your Means
While following a budget, you need to learn how to live within your means. This will require watching others around you make excess purchases, but you should not attempt to "keep up with the Jones'."
After you file bankruptcy, stick to your budget and do not make excessive type of purchases. Expensive vacations, electronics, home improvement projects, vehicles, recreational equipment, and toys are all unnecessary at this point in your life.
Any extra money that you do accumulate during this time should be saved or used towards paying down debt that is still a part of your budget after filing bankruptcy.
Filing bankruptcy can decrease your credit score by an estimated 240 points. This lower score will mean declined credit applications or approved applications with high-interest rates and monthly payments. It is important to remember that credit restoration will take time after you file bankruptcy, but it is possible.
To get started, talk to your bank about applying for a secured credit card. This type of credit card requires a small cash deposit, which acts as your credit limit. Once approved and your deposit it made, make a small purchase on the card each month. This purchase should be small enough that you can pay it off immediately, so you do not roll any balance that accrues interest over to the next month.
Bankruptcy is helpful for many people, but proper understanding is essential. This guide and your bankruptcy attorney will help you rebuild your financial future after filing bankruptcy.