Getting Back into Good Financial Shape after Bankruptcy

obody wants to think that they could get themselves into so much financial trouble that bankruptcy becomes the only option. And yet, every year over a million people are forced to do the very thing that they fear, in essence committing financial suicide. In many cases, external factors are to blame, and in an economic recession bankruptcy filings are bound to increase. This means that a lot more people could be facing this situation, along with the personal loss, social stigma, and uncertain financial future that go along with it. But declaring bankruptcy is not the end of the world; in most cases it’s nothing to be ashamed of and there are certainly ways to recover from such a loss. So here are just a few tips to help you get back into fighting shape where your finances are concerned, even if you’ve suffered a recent bankruptcy.

The best place to start is by determining what led to your bankruptcy in the first place. Do you have trouble with overspending in general or did you just get over-extended on one big-ticket item (like a house)? Even people that are generally responsible when it comes to their finances can easily get in over their heads, especially when factors outside their control conspire to land them in hot water. If you suffered a divorce, job loss, serious medical issues, or other circumstances beyond your control, your finances may have been impacted through no fault of your own. In a way, this is a better place to start from since you already have a good idea of how to manage your money for success. You should have no problem rebuilding your credit.

But if you were squarely to blame for the situation then now is the time to take responsibility and start questioning what habits you need to change and what you have to learn in order to ensure that the behaviors that led to bankruptcy don’t recur. You will want to start by learning how to budget and live within your means. If you have issues with overspending, impulse control, and poor planning and tracking when it comes to your funds, you have a good springboard for improvement. You’ll want to start by sticking to what’s in your bank account (no credit cards!) and tracking everything. If you don’t feel like you can do this, take the time to talk to a financial planner about setting up a workable budget so that you don’t feel deprived, and give yourself an allowance for extras. You might even want to start visiting a therapist that specializes in cases like yours (aka shopaholics). Getting the right kind of help is essential to a debt-free future.

From there you’ll want to address any remaining debt with a payment schedule (bankruptcy doesn’t always dispel the entirety of what you owe) so that you can start to rebuild your credit. And in that vein, you should also get a copy of your credit report (you can order it once a year for free at AnnualCreditReport.com). As you pay off debts, they should disappear from your report; if they don’t you need to address the issue or your credit will not improve. In order to reestablish your credit, you will probably want to get a credit card at some point. So consider a secure card through your bank. The limit will be low, so you should be able to pay it off each month, and the bank will hold a deposit as collateral for a year (after which you get it back with interest). The result is that you enjoy a lower interest rate than other lenders will offer someone with a troubled credit history, and you can rebuild your rating with less temptation to overspend.

Carol Montrose is a contributing writer for Doyle Raizner, a team of dedicated legal professionals based in Houston, Texas.