Life After Bankruptcy
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For anyone dealing with debt problems, thinking ahead is almost impossible because a future without debt does not seem imaginable. By the time most people seek the advice of a bankruptcy attorney, they have been dealing with angry creditors and threatening debt collectors for so long, they are completely beaten down and have no hope for a brighter future. Once they realize that filing a bankruptcy case discharges their debts and gives them a fresh start, they begin to have hope for a good future after debt problems. However, some people still believe they will never be able to recover after bankruptcy but there is life after bankruptcy.
I Will Never be able to Buy Anything after Bankruptcy
This is a very common misconception about filing bankruptcy. Some people assume that they will never qualify for credit to purchase a new car or a new home if they file for bankruptcy relief. This is simply not true. Filing bankruptcy will not prevent you from qualifying for a car loan or a mortgage in the future. In many cases, filing bankruptcy helps you qualify for future credit because the bankruptcy filing “cleans up” your debt problems so that you can start rebuilding your credit rating after the bankruptcy case is complete.
For example, by discharging your debts, bankruptcy improves your debt-to-income ratio by lowering your overall debt. Creditors use several factors, including your debt-to-income ratio, when evaluating your credit application to determine if you qualify for credit and in what amount. Another factor is your credit history. Creditors report all late payments on your credit history. Late payments lower your credit score. Because the bankruptcy filing discharges the debt, a creditor must report a zero balance on the account and stop reporting late payments. It could take a little time but your credit history will continue to improve with each passing month.
Learning to Budget After Bankruptcy
In order to improve your financial well-being after bankruptcy, you should use some of the skills you learned in your mandatory debtor education course to begin living within a budget. Many people view budgets in a negative manner because they look at a budget as a way of denying what they desire. However, living within a budget actually helps you have the things that you desire by helping you save money each month. Your goal is to spend less than you earn each month while also contributing to an emergency savings account so that you do not need to use credit for unexpected expenses. However, it is very difficult to spend less than you earn if you do not know where you money is going each month. A budget helps you accomplish your goals after bankruptcy.
Tips for Starting a Household Budget
- Determine monthly income – The first step is to determine your net monthly income. Multiply the net income from your paycheck by the number of pay periods in one year and divide by 12 (i.e. $462 x 52 / 12) to arrive at your average net monthly income. If your net income fluctuates, add your last 13 net paychecks together and divide by three to calculate your average net monthly income.
- List your fixed costs – Your fixed costs include your mortgage/rent, utilities, car payment, insurance payments, property taxes and other fixed expenses. Remember to include an amount for an emergency savings account – you need this account to handle unexpected expenses.
- Calculate annual expenses – You must plan for annual expenses such as buying back-to-school clothes, paying school tuition, holiday gifts, family vacations, annual tax payments, periodic insurance payments, etc. Divide the total of your annual expenses by 12 to calculate an estimated monthly figure. You will deposit this amount into a savings account each month to cover annual expenses as they become due during the year.
- Calculate your net monthly discretionary income – Subtract your fixed costs and the monthly annual expense amount from net monthly income to arrive at your discretionary income. Discretionary income is what you use each month to pay for groceries, gas, entertainment, eating out, etc. If your expenses exceed your discretionary income, you must find ways to decrease your expenses. You may need to cut back on entertainment and start taking your lunch to work each day. You should never have a negative amount at the end of the month because this means you are spending more than you earn which will lead to financial problems in the future.
If you are having trouble reigning in your discretionary expenses, track your spending for several months. Use a notebook or ledger to write down everything you spend each month. After a few months, review your expenses to determine where you can decrease spending to save money each month.
Contact an Experienced Bankruptcy Attorney
If you are struggling with overwhelming debt, contact Weston Legal, PLLC to discuss your bankruptcy options. You have options for dealing with your debt problems. We will help you find the solution that is best for you.