Bankruptcy is always challenging to deal with. Whether it’s an individual or a business that goes through this, it signifies the same thing: a financial crisis. However, there’s still hope after going through this crisis.
Scaling through the crisis and into financial balance is still possible. You just need to follow the right steps to ensure certain debts are discharged.
In tough financial situations that lead to the inability to repay debts, filing for bankruptcy might be the only way out. Filing for bankruptcy can, however, be a difficult and overwhelming process.
In most cases, it’s best to leave this to experts, such as bankruptcy lawyers, who would get you the best results. It’s important to remember that bankruptcy doesn’t have to be the end of the road.
While bankruptcy can have a significant impact on your credit and financial situation, there are steps you can take to rebound and regain control of your finances.
It is crucial to remember that bankruptcy is not a permanent solution. It is a way to get a fresh start and discharge certain types of debts, but it is not a magic wand that will disappear all your financial problems. After bankruptcy, it is important to take a long-term approach to rebuild your finances.
In this article, we’ll discuss the important steps to take that’ll ensure you are able to rebound after bankruptcy. However, before going into these steps, it is vital to understand what bankruptcy is and its process.
Bankruptcy is a legal process that allows businesses or individuals unable to repay their debts to either have some or all of their debts discharged or to repay them under the protection of the bankruptcy court.
Depending on the jurisdiction and the type of bankruptcy filed, the debtor may be able to keep certain assets, while other assets may be sold to pay off creditors. It’s smart to get in touch with bankruptcy lawyers as that’ll guarantee a better result in court.
The goal of bankruptcy is to give the debtor a fresh start by discharging certain debts and reorganizing their finances. It is important to note that the laws regarding bankruptcy vary by country and jurisdiction, and the process and outcomes may differ.
The most common types of personal bankruptcy are Chapter 7, a liquidation bankruptcy, and Chapter 13, a repayment bankruptcy.
Chapter 7 Bankruptcy, also known as a “fresh start” bankruptcy, allows individuals to discharge most of their unsecured debt. This type of bankruptcy is available to both individuals and businesses.
A trustee is appointed to sell any non-exempt assets to pay off creditors, and the remaining debts are discharged. Chapter 13 Bankruptcy allows individuals to keep their assets and create a repayment plan to pay off their creditors for 3 to 5 years. Also known as a “reorganization” or “wage earner” bankruptcy, this type is only available to individuals.
Though these are the most common types, there are other types of bankruptcy, such as Chapter 11 Bankruptcy and Chapter 12 Bankruptcy.
Ways to ensure financial rebound after bankruptcy
Below are steps to ensure you get a financial rebound after bankruptcy. Keep in mind that while these steps are important, it is crucial to involve a bankruptcy lawyer as soon as possible to ensure your financial situation doesn’t get worse before getting better.
- Seek professional help
One of the most important steps after bankruptcy is seeking professional help. Consider working with a financial advisor or credit counselor to help you create a plan to rebuild your finances. These professionals can provide guidance and support as you work to recover from bankruptcy. It is also important to consider hiring an attorney specializing in bankruptcy law.
They can help you navigate the legal process, understand your rights and increase your chances of getting a successful outcome.
An attorney can also help you with potential issues that may arise after the bankruptcy discharge. For instance, if a creditor continues to try to collect a debt that has been discharged, an attorney can help you take legal action against that creditor.
They can also help you with any disputes arising with the trustee or other parties related to the bankruptcy case.
Additionally, an attorney can help you understand the different types of bankruptcy and which is best suited for your situation. For example, if you have a regular income and your unsecured debt is below a certain amount, Chapter 13 bankruptcy may be a better option.
It allows you to keep your assets and create a repayment plan to pay off your creditors for 3 to 5 years.
- Create a budget
One of the first steps to rebound after bankruptcy is to create a budget and stick to it. This will help you manage your expenses and stay on track financially. It’s also important to start saving money as soon as possible, even if it’s just a small amount.
Building an emergency fund will help you prepare for unexpected expenses and give you a cushion in financial emergencies.
- Repair your credit
Another important step is to repair your credit. Bankruptcy will harm your credit score, but you can take steps to improve it over time. Making all of your payments on time, keeping your credit card balances low, and working with a credit counseling service can help you rebuild your credit.
It’s also important to look for ways to increase your income. Increasing your income can help you rebuild your finances after bankruptcy. This can be done by starting a side business or taking on a part-time job.
- Establish an emergency fund
Establishing an emergency fund is important to ensure financial rebound after bankruptcy. An emergency fund is a savings account set aside specifically for unexpected expenses. These expenses include car repairs, medical bills, or job loss. An emergency fund can help you avoid falling into debt again in case of an unexpected expense.
When rebuilding your finances after bankruptcy, it’s important to have an emergency fund in place to provide a safety net. Without an emergency fund, you may rely on credit cards or loans to pay for unexpected expenses, which can quickly lead to more debt.
By setting aside money in an emergency fund, you can avoid this trap and stay on track with your financial recovery.
The recommended amount for an emergency fund is 3 to 6 months of living expenses. Start small and gradually build it up over time. The key is to make regular contributions to your emergency fund and resist the urge to dip into it for non-emergency expenses. Remember, this fund is for unexpected expenses, not planned expenses like a vacation or home renovation.
- Avoid unnecessary expenses
Avoiding unnecessary expenses is an important step in ensuring financial rebound after bankruptcy. It can be easy to buy things you don’t need, especially if you’re trying to rebuild your credit or improve your financial situation.
However, this can quickly lead to accumulating more debt and set back your progress in rebuilding your finances. When avoiding unnecessary expenses, it’s important to be mindful of your spending habits. Start by tracking your expenses and identifying areas where you may be overspending.
Then, make a budget that helps you allocate your money towards essential expenses such as housing, food, and transportation while cutting back on unnecessary expenses such as dining out, buying expensive clothes, or buying unnecessary gadgets.
Additionally, you can look for ways to save money on essential expenses. For example, you can shop for the best grocery deals, compare prices on big-ticket items, or negotiate bills and expenses.
It’s also important to resist impulse buying and to avoid using credit cards for unnecessary expenses. Instead, pay for things in cash or with a debit card, which can help you stay within your budget and avoid accumulating.
After filing for bankruptcy, your life will never be the same. The steps are only sometimes clear, and it can be hard to know where to start. While this can be a difficult and overwhelming process, it doesn’t have to be the end of the road.
By taking a long-term approach, creating a budget, saving money, repairing your credit, increasing your income, and seeking professional help, you can rebound and regain control of your finances.
Remember that hiring a lawyer specializing in bankruptcy law is crucial, as they can provide you with the support and guidance you need to navigate the process and increase your chances of getting a successful outcome.
It’s also important to remember that rebuilding your finances after bankruptcy will take time and effort. Still, by following the steps discussed above and seeking professional help, you can get back on track and achieve financial stability.
The bankruptcy process can be difficult and complex, and a competent attorney will provide you with the support and guidance you need to navigate the process. They would also help you understand the long-term implications of bankruptcy and develop a plan to move forward.