How to Take Charge of Your Personal Finances Post-Bankruptcy

For many consumers, having a big, blaring bankruptcy on your credit report can feel like being branded with a rouge ‘A’ on the front of your shirt.

You’ve raised a financial white flag, proclaiming utter debt despair.

Though an immediate bankruptcy filing won’t bear the same public humiliation as it did for Hester in The Scarlett Letter, the financial and debt wounds many consumers are inflicted with still tend to slice deep. As if the events leading to the filing weren’t excruciating enough, with consumers being suffocated with mounds of credit card and unsecured personal loan debt, the scene can turn even grislier in the aftermath.

“Bankruptcy certainly is a taboo subject,” explained Kimberly Pelkey Sdeo, a New Jersey attorney. But although the process tends to be chastised, bankruptcy has been around since the country began.

“Bankruptcy has been around in some form since the birth of this country. Congress enacted the first bankruptcy laws in 1800, so we have a very long history of supporting some form of debt relief for those who are in over their heads,” she explained.

According to statistics from the Administrative Office of the U.S. Courts, 1,311,602 Americans filed for bankruptcy in the 12-month period ending in June 2022. And according to the American Bankruptcy Institute, almost 70 percent of the filings were categorized as Chapter 7, or “liquidation” bankruptcies. These kinds of bankruptcies tend to be options for consumers with no assets, little income, and a substantial amount of debt.

Bankruptcies ravage a credit score, plunging an average-to-good score by 100 points, or more.

But despite the havoc a filing will wreak on your credit score (not to mention your sense of financial pride), consumers will find no solace digging their shamed heads in the dirt.

“It is important to realize that there is life after bankruptcy,” stressed Erik Severino, attorney from the Guinn Law Group of Phoenix. “It does not have to be a life where you are treated like a financial outcast and banished to years of credit exile. On the contrary, life after bankruptcy can be enormously rewarding – but only for those who strategize and properly commit themselves to not wasting the second chance that bankruptcy can offer.”
Beginning to Pick Up the Pieces

Following a bankruptcy filing, consumers are likely to experience two immediate effects: a sense of shame or guilt, and a gaping credit score.

“One of the first things a debtor must do post-bankruptcy is to let go of the guilt and the shame,” explained Severino. “One must resolve to make peace with the past and let it go, not to dwell on negative thoughts or wallow in self-pity.”

For many downtrodden bankruptcy filers, this may be the most difficult step. But it’s crucial to accomplish quickly if you want to make any headway with your future finances.

“You [won’t be able to] own anything new for a while,” explained Wayne Sanford of New Start Financial Corporation. “At least not without a major price.”

Although a bankruptcy will allow a consumer to be discharged of his or her debt (for the most part), your name will be synonymous for risk with most lenders. Honing in on credit rebuilding will critical in the immediate months following the filing.

“Create and stay true to a reasonable and realistic budget, while also paying all bills on time. Your budget will act as a spending plan, helping you to manage cash flow and preventing you from racking up unnecessary debt,” Severino said.

For many consumers who’ve resorted to bankruptcy, the notion of taking on more credit would certainly induce some nerves. But according to Sdeo and Sanford, it’s a nerve worth overcoming.

The credit bureaus report a bankruptcy for 7-10 years after filing, but this doesn’t mean that your credit is shot forever,” Sdeo explained. “Bankruptcy offers a new beginning, a fresh start. After the court enters a discharge and closes a case, you are free to access credit markets again.”

“It is very possible to have a credit score of 700 just 12-14 months after filing chap 7 bankruptcy,” stressed Sanford. “Obtain 2-3 secured credit cards and utilize 20-30 percent of the credit limit… I have seen this and counseled many clients [on the subject] and it’s worked every time — as long as they pay the bills on time.”
Unsecured Personal Loans in Bankruptcy

For those that may have wound up in debt based from their plastic pals, relying on secured credit cards can be like asking an alcoholic to sober up with help from a bottle of O’Doul’s. In that instance, finite amounts of credit – like secured or unsecured personal loans – might come into play.

However, unsecured personal loans or secured personal loans in bankruptcy will come with some serious downsides. Lenders are likely to gawk at your score, matching you up with some horrendous interest rates.

But if you can manage the monthly payments, according to Sdeo, unsecured personal loans can be an option. But although the financial option is present, consumers will need to take the notion with a sizable grain of salt.

“It depends upon an individual’s circumstances and where he or she fits within the creditor’s guidelines,” she explained. “The interest rate may not be iWdeal. [But most importantly], the consumer should evaluate why the personal loan is necessary – did a car break down and need to be replaced or are you falling back into the spending and debt habits that initially caused you to file bankruptcy?”

The bottom line to any method of credit-rebuilding is timeliness. No matter what the line of credit is attached to, on-time bill payments in full will be the only guaranteed method for credit-repair.…