So you filed bankruptcy. Congratulations on taking steps necessary to deal with your old debt and get the legal protection and fresh start you are entitled to under the law.
Your journey isn’t over though. The best days are now ahead of you but you will need to take action to rebuild a better financial future.
Below you will find a combination of the biggest mistakes people make after bankruptcy and what you need to do to launch your new and better financial life.
The Biggest Mistakes People Make After Bankruptcy
- Avoid Credit – This has to be one of the dumbest mistakes people make after bankruptcy. I understand why some people want to avoid credit, because they equate it with pain. But the reality is it wasn’t the credit or credit card that got you into trouble, it was the accumulation of debt that could not be paid.
if you can responsibly own sharp knives in the kitchen and not kill someone, you can avoid debt even if you have a credit card. It’s just about conscious personal responsibility.
If you shun credit and unsecured credit after bankruptcy it will only slow the rebuilding of your credit score. And a better credit score leads to lower cost loans, insurance, and other things. There is relatively no downside to having a good credit score or at least I sure can’t think of one.
- Avoid Credit Cards – See above for some of the reasons. I’ve watched far too many people that simply are under the misperception that debit cards are somehow better than credit cards. From a safety of use and a consumer protection point of view, that’s simply not true and not supported by any facts.
- A debit card is not regulated by the same laws that protect credit card use.
- A mistake in a debit card transaction comes right out of your bank account.
- When you give someone your debit card you are giving them electronic access to your money.
- Debit cards don’t build credit.
- If you have the money to pay for something with a debit card, you have the money to pay for it on a credit card.
- Debit card overdrafts result in some of the most expensive credit around. Even more expensive than a payday loan.
- Not Looking at Your Credit Report – A month or so after you receive your final bankruptcy discharge you should get a copy of your consolidated credit report. The consolidated credit report I prefer has a fee associated with it but in my experience the format they are delivered in make them so much easier to read and spot errors.
If you don’t want to take the easier and better way, you can get individual free copies of your credit reports from annualcreditreport.com and then fumble through trying to match things up.
Once you get all three credit reports, or your consolidated credit report in front of you, you want to make sure every single account that was included in your bankruptcy is listed as included in your bankruptcy. You will want to look at the public records section of the report and make sure it lists the bankruptcy as well.
Also look for any other accounts you don’t recognize or are not yours and dispute those with the credit bureaus that list them.
This credit report exercise is important to make sure the door is closed and clock stopped on the old debts that were discharged in your bankruptcy.
- Living With Fear or Shame – So you filed bankruptcy. So what? I filed bankruptcy and so have millions and millions of other people. While there is no clubhouse or secret handshake, there is also no shortage of people that have had to turned to the legal protection bankruptcy has to offer and have gone on to do much better.
Not only will you have joined me in that bankruptcy club but also some others you might recognize like Larry King, Mike Tyson, MC Hammer, Willie Nelson, Walt Disney, Jerry Lee Lewis, Dave Ramsey, Thomas Jefferson, Abraham Lincoln (essentially), Henry Ford, President William McKinley, Milton Hershey, Rush Limbaugh, Burt Reynolds, H.J. Heinz, P.T. Barnum, Charles Goodyear, and on and on and on.
I seriously doubt you filed bankruptcy on a whim or didn’t have a darn good reason for filing. Sometimes things just don’t workout as planned. And for whatever reason you found yourself in a bad situation with few good options. And let’s not forget, bankruptcy is your legal right.
The more you try to hide your bankruptcy, the more it will eat at you. You filed, so what, own it. Live with it. You did what you did because you had few if any other good options. Your life has not ended, you are not on fire, and nobody poked you in the eye with a sharp stick.
Life could be worse but you know what, it’s not right now. “Turn that frown the other way around” (watch video below) and let’s start being grateful for the life around you. It’s time to live for tomorrow, not yesterday.
Everything Will Be Alright
And if you are still feeling blue about this, read Is Bankruptcy Sinful and Bad or Right and Moral? An Examination.
- Losing Your Bankruptcy Paperwork – Put your bankruptcy paperwork with all your other important papers. You will need to hang on to that for life. The most likely reason you will need it is if a creditor comes back in the future and says their account was not included in your bankruptcy. Having the bankruptcy paperwork handy will make it an easy issue to resolve quickly.
- People Fear Filing Bankruptcy Will Make it Harder to Get a Job – The facts and research just don’t support that urban myth. Want to know more, see Getting a Job After Bankruptcy. Don’t let the fact you filed bankruptcy hold you back from seeking a better job.
What You Need to Do to Quickly Rebuild a Better Financial Life After Bankruptcy
- Start Rebuilding Your Credit Immediately – Don’t be stupid and avoid credit, get back in the game as quick as possible after your bankruptcy discharge. If you want to rebuild your credit score and improve your credit report, right after bankruptcy you should apply for a secured credit card that reports to all three credit bureaus. It’s the reporting of your new good and on-time payments that will rebuild your credit score.
However, don’t be surprised if you start receiving credit offers in the mail right after your bankruptcy. Avoid the ones with high fees and loan credit limits.
For more on all of this, see How to Easily Rebuild Your Credit and Have Good Credit Again.
- Start Saving Money – It’s important to start saving money for two reasons. The first is to build an emergency fund so you don’t have to fall back on credit if a financial surprise happens. Make sure you have a few thousand dollars in that fund at least.
Second, you will probably need or want to buy a home or car in the future. The larger your downpayment is the easier it will be to be approved and the lower interest rate you’ll be charged.
- Start Investing – If your employer provides matching funds if you participate in the company 401(k) then invest at least enough to get the free money they want to give you. Otherwise you are turning away a guaranteed 100 percent return on those matching funds. And never borrow from your 401(k), IRA, or 401(b). Keep that money off limits and protected for your retirement. I’ve yet to meet anyone that said they retired with too much money.
- Learn From Your Mistake – I always say there is no sense wasting a perfectly good mistake. The real tragedy of your bankruptcy wouldn’t be that you filed bankruptcy, it would be that you didn’t learn anything from the entire experience.
I suggest you take a good introspective look at what lead up to your financial mess and then make every effort to avoid those hurdles in the future.
And that’s it. As you can see the mistakes to avoid are easy to spot and the steps to begin rebuilding a netter financial life are easy.
There is no reason why, if you follow my advice, that you can’t have better credit than before or buy a new car next year or a new home in a couple of years.
Don’t let people tell you otherwise, bankruptcy is survivable.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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