Most people will do anything to avoid bankruptcy and it can certainly feel like the end of the world if it happens to you. However, with an average of 1 in 500 people having personal bankruptcy in the US (this figure is as high as 1 in every 200 in certain states!), bankruptcy remains rife across the nation.
There’s no denying that it can be a difficult time for individuals, but with careful planning and analysis of your habits, there are plenty of ways to bounce back.
Work out what happened
The most important factor in bouncing back from bankruptcy is acknowledging what got you into that financial position in the first place.
Whether it be an unsuccessful business venture or spending beyond your means, look at exactly where you went wrong and what led you into trouble.
Was it a one-off purchase that seemed necessary at the time but had a significant and detrimental impact on your budget? Or perhaps you became accustomed to a lifestyle which saw you spend more than you were earning?
Once you’re able to pinpoint specific decisions that led you to the position you’re in, you’ll be able to start your recovery. Simply spending time analyzing what went wrong will help ensure you don’t make the same mistakes in the future.
Create a monthly budget
Creating a monthly budget – whether by putting pen to paper or creating an excel spreadsheet – can really help when it comes to bouncing back from bankruptcy.
Knowing how much money you have coming in, and where you need to allocate it, will help you get to grips with your financial situation. This minimizes the chance of an unpleasant surprise in finding you are short at the end of the month.
If necessary, breaking down your budget into weekly sections will present an opportunity for further frugality.
These seven-day breakdowns mean if you go over budget one week, you will know in advance to budget appropriately by spending less the following week, helping you keep on track.
Rebuild your credit score
When you are declared bankrupt, your credit score will be significantly impacted, often making life difficult when trying to get a mortgage or buy a car.
Getting a credit card is one of the simplest ways to rebuild your credit rating, but it’s vital you only use it for what you can afford, and even more important to pay it off on time.
Using your credit card to make monthly payments on inexpensive purchases allows you to gradually rebuild your credit score in a low-risk manner.
Often rolling purchases such as a bill or contract are best to pay through your credit card as they won’t come as a surprise and will be factored into your budget.
If you’re worried about the risks of having a credit card, buying one with a low credit limit ensures you can’t spend above your means yet can continue to rebuild your credit score.
Make necessary lifestyle changes
Regardless of life, they lived before bankruptcy, those who successfully bounce back quickest are those who learn to adapt most effectively.
A comfortable (or even lavish) lifestyle may no longer be reasonable and focusing on the little things can make a big difference.
When sitting down with your budget, examine where your money is being spent and consider alternatives where you could reduce that amount:
- Think about your suppliers – could you be getting a better deal elsewhere?
- Spend time checking comparison websites – perhaps you might find you can save hundreds of dollars a year.
- What are you putting in your weekly shopping trolley? You might be paying for a particular brand that’s significantly more expensive than a store brand with virtually identical taste and appearance.
By going through your expenses and checking for cost-efficient alternatives you could be saving money every week.
Start saving wherever possible
Avoid living paycheck to paycheck whenever possible.
Putting money aside may seem impossible at a time when you have almost none of it, but making sure to save even a tiny amount every month can be worthwhile and should be factored into your budget.
Not only will it gradually build up into a value you can safely invest for extra revenue, it will also help cover you for any unexpected emergency that may occur – medical or otherwise.
Keep a healthy state of mind
Nearly one in five Americans are now diagnosed with an anxiety or depressive disorder yet 55% still save absolutely nothing each month – of which 19% actually spend more than their income!
This correlation between finance issues and mental health problems is not a new revelation, yet is one frequently ignored by those in the situation.
Though bankruptcy can leave you feeling embarrassed, you may find it practical to speak to others about your situation.
By letting another person look objectively at your spending habits – whether it be a professional or a trusted friend – you may receive unexpected financial guidance.
Others may spot risks in your financial plans that you haven’t noticed or see something you are spending a significant amount on which they know how to cut down.
Even just speaking about your concerns and getting them out in the open can be a good thing and help you make big steps forward in bouncing back from bankruptcy.
Make use of free credit reports
Gradually improving your credit score is important but don’t take it for granted that it will be accurate.
Everyone is entitled to a free credit report – from Equifax, Experian and TransUnion – once every 12 months, so make sure you take advantage of that and look out for any discrepancies.
If you do spot anything that looks wrong, don’t be afraid to dispute it. It may take time but having an accurate and up-to-date credit report can make a huge difference in the future, so it’s definitely worthwhile.
Use your experience
If your business was the reason for your bankruptcy, you might feel stuck not knowing where to turn next.
However, your industry experience alongside your financial hardship can actually prove to be a big advantage.
Whether it’s advising companies not to follow mistakes you may have made or helping other individuals struggling financially, you can use the skills you have built up moving towards a different venture.
There are plenty of business leaders and executives who were once bankrupt or in a similarly difficult position – but they got back to work and found a new way to create their own success. There’s nothing stopping you from doing the same.
Bouncing back from bankruptcy isn’t an easy process, but it’s certainly achievable – and with patience, good planning and a positive outlook there’s no reason for your finances not to get back on track.