Starting over after Bankruptcy

Starting over after a bankruptcy can be challenging. For one, you may not get approved for credit right away. And it also takes effort and skill to avoid falling into debt again. Therefore, you must have a plan on how to handle your finances now that you have a fresh start. There are several things you can do:

1) Compute your monthly budget

The most basic, but most important way to recover after a bankruptcy is to come up with, or amend, your budget. Obviously, some changes need to be made to your budget in order to avoid falling back into debt. To create a monthly budget chart, total all of your income sources and all of your expenses. Figure in yearly expenses as well. Include everything – even the most minor details. Round up on expenses and round down on income to make sure all of your expenses will be covered. Be realistic with what you put in your budget chart.

2) Follow your budget

People are typically sensible about their finances when they initially create a budget chart. But in order to continue with the sensibility, and follow through, you should follow the chart exactly as it’s laid out. If you find that your budget is not working right for you, change the chart. But always make sure you follow your chart so you don’t get off track.

3) Limit credit card use

Until you know if your budget is effective, avoid using credit cards. In fact, it is good to live without credit cards for the first year. They are little loans, and therefore, can be troublesome, so avoiding them for a while is wise. First make sure you can live off your income and follow your budget month to month. Then, if you wish, slowly introduce credit cards back into your life. If you use a credit card to make a purchase, use it only in emergencies or if you have the cash in your account to cover the charges.

4) Accrue a savings account

Deposit some money into a savings account each month. This will help you in two ways: 1) the money can come in handy for unexpected expenses; and 2) it gets you out of the habit of living paycheck to paycheck. In other words, it will help you look into the future and plan for it. Underestimating expenses is what gets many people stuck in high-debt situations. So by doing the opposite – making sure money is left over after expenses are covered – you are sure to be successful with budgeting your finances.

5) Apply for credit

Years down the road, when you have a handle on your budget and finances, you may want to try applying for credit in order to reestablish your credit rating. This could be any type of credit that you think you can handle. It is not necessary to avoid credit for the rest of your life because you’ve had a bankruptcy; rather, the point is to relearn how to manage your finances and credit. When requesting credit, be realistic, and avoid situations that may be problematic for you.

Now that you’ve mastered your budget, developed a savings account, and rebuilt your credit, you are well on your way to a satisfactory credit rating and financial situation. The most important thing to remember is, in order to avoid mistakes, you must learn from past experiences and have a plan for the future.