Bouncing Back from Bankruptcy – Part 1

In 2011, 22,388 North Carolinians that filed for non-business bankruptcy according to the American Bankruptcy Institute. Filing for bankruptcy is a personal and difficult decision many Americans have to make every year. Often, it can leave you feeling guilty and depressed. Other times, this feeling passes and it can give you immense relief that you wouldn’t have felt otherwise. But, bankruptcy doesn’t end once your case is closed. Bankruptcy filings that are completed and dismissed remain on your credit report for many years. Most will remain on your credit report for seven years but severe Chapter 7 bankruptcy cases can remain for up to 10 years. This can affect your lifestyle in many ways. The lingering effects of bankruptcy can affect whether you can buy a home or car, rent an apartment, and even get a job in certain sectors of the job market. If you are lucky enough to get a loan, you may be charged “subprime rates” which is industry jargon for ridiculously high rates.
The fact of the matter is, there is no easy way to bounce back from bankruptcy. It takes time, effort, and discipline. Listed below, we are presenting part 1 of a 2 part series on how to bounce back from bankruptcy.

Step one: Learn to Control Spending and Build a Budget
One of the toughest lessons in money management is learning to live within ones means. With lines of credit readily available for homes, cars, iPhones and student loans, it can be quite overwhelming how much you can obtain with the little amount you required to pay back each month. During post-bankruptcy, these loans aren’t as readily available as before because creditors are reluctant to offer you the credit lines that you might have had prior to bankruptcy.

Step two: Figure Out What You Have to Spend
You need to sit down at a table and pull out a calculator to determine your finances. Take out your pay stubs and figure out what your income is after taxes every month. Then, calculate 7-10% less than that figure to put away each month for your long-term savings which includes big-ticket purchases and/or emergencies (this does not include the percentage you put away in your income for your 401k). The amount after subtracting your long-term savings is your monthly income.

Step three: Set a monthly budget
Now that you know your monthly income, it is time to set a monthly budget. So, pull out a calendar and write down every bill you pay. This includes phone, car payment, rent/mortgage payment, gas, and an estimate of your monthly expenses for utilities and food. The average American spends 9-12% on food a month, but www.crown.org recommends no more than 9% per month to be spent on food. This can seem impossible, especially to a family but there are several money-savings methods out there for food shopping. The most popular is menu planning (you can learn more about this strategy here). Ultimately, how much you spend and don’t spend is entirely up to you but remembering to determine the difference between a necessity and a luxury is the most important. Being able to purchase food for your family each month is important; being able to afford dinner out every night is not.

Step four: Pay in cash for everything
This will help you slow down and consider the worth of every dollar you spend. Using cash, debit cards, and checks will help you track your spending and stay within your means. Remember, there’s no shame in not being able to afford to do something. Often, there are cheaper and easier alternatives to everything. Remember to periodically evaluate yourself. CNN Money warns against the budgeter from getting “too comfortable within the budget” and reminds them to accommodate for inflation.

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