3 Tips on How to Start Over After Bankruptcy and Divorce
In 2016, over 800,000 people filed for bankruptcy. If you are dealing with the devastating aftermath of bankruptcy after divorce, you might feel defeated or overwhelmed.
Both bankruptcy and divorce represent two incredibly emotional hurdles. Maybe you don’t know what your next should be, and that scares you.
While getting back on track towards financial security and stability isn’t easy, there is hope!
Read on to discover the top tips for starting over.
1. Educate Yourself on Bankruptcy After Divorce
After filing bankruptcy, you need to know exactly what that debt does and does not get eliminated.
For example, filing bankruptcy may not alleviate you of the following responsibilities:
- Student loans
- Child support
- Alimony payments
- Majority of tax debts
- Majority of criminal fines and penalties
While you may receive some financial relief or excuses for these debts, you will need to speak with a bankruptcy attorney to review your plan.
Chapter 7 Bankruptcy
People typically file for Chapter 7 bankruptcy when there is limited to no equity or assets and very little to no additional income.
When you file for Chapter 7 bankruptcy after divorce, the process moves quickly and efficiently. You can eliminate most of your unsecured debts, such as credit card and medical debts.
In general, Chapter 7 Bankruptcy is for low-income debtors with little to no assets. This is the bankruptcy most people associate with being able to provide a “fresh start.”
Chapter 13 Bankruptcy
People typically file for Chapter 13 bankruptcy if they have equity in a property and generate regular income. With that said, despite the cash flow, they are unable to keep up with the scheduled payments for their debt.
With Chapter 13, you can keep your property. You’ll have a few years to play “catch-up” on your delinquent debt accounts in collaboration with your bankruptcy trustee.
You will pay a monthly payment for distribution, but you will not be in contact with creditors during that time.
2. Scrutinize and Assess Your Financial Plan
If you’re struggling with bankruptcy after divorce, it’s critical to assess your personal finances ASAP.
This can mean a variety of factors depending on the dynamics of your former marriage.
If your spouse was the primary breadwinner in the family, you may need to either obtain a job or obtain a higher-paying job.
If you have been out of the workforce or you need to suddenly bring in more income, this reality can be overwhelming.
With that said, job growth continues to rise, particularly in certain industries. Polish up your resume, get networking, and put yourself out there.
If you are already working full-time, you may need to add a second job or side hustle. Get creative with it! Many people do this to stay afloat with paying their bills and gaining a financial peace of mind.
Consider picking up a few extra shifts at work or adding part-time work. Remember, it will be hard to create a solid financial plan without a consistent flow of income.
Manage Your Finances
If you never managed the finances, you will need to learn how to track your spending and make a budget.
Bankruptcy is a serious decision, one that can remain on your credit report for up to 10 years. While that’s a long time, that also gives you the invaluable opportunity to build your life back together and develop appropriate financial habits.
First things first, you need to see where your money is going. Download a free, user-friendly app such as Mint or Personal Capital. These apps provide live tracking, so you can see exactly how much you spend on various categories.
Once you know where your money is going, you need to create a strict budget. This means shedding the extra financial fat as much as possible (extra shopping, eating out, and cable).
Create an Emergency Fund
Experts recommend saving at least 3-6 months of living expenses in an emergency fund. This will ideally protect you against job loss and other family emergencies.
If you just filed bankruptcy after divorce, this number may seem overwhelming. However, every penny helps. Protecting yourself from emergencies is responsible, and it’s crucial if you have children.
3. Rebuild Your Credit
After learning how to budget and manage your finances, you will also need to have a plan for taking on future debt.
In general, many lenders will perceive you as a bad risk since you’ve already proven that you did not pay certain debts.
This means that you may struggle to qualify for loans or credit cards. If you do qualify, you will notice higher interest rates and fees associated with approvals.
With that said, your goal is to avoid adding on debt as much as humanly possible. Do whatever you can to pay for things as you go- without owing a debt.
Make All Your Payments On Time
This is your chance to be a model financial citizen. Pay all your bills on time and in full. If you still have a credit card and you use it once in awhile to pay for your necessities, pay the bill off immediately.
New Credit Card
About six months after filing bankruptcy after divorce, it may be a good idea to apply for a secured credit card. These cards require you to put down an initial deposit as a form of collateral to the lender. After switching the card to an unsecured version, you will receive your initial deposit back.
The same rules will still apply: use the money only for expenses you can cover and aim to pay off your bills as soon as you can. This will help slowly repair your credit score.
Final Thoughts on Filing for Bankruptcy After Divorce
Both bankruptcy and divorce can be devastating for you and your family. Even though your emotional and financial situation may feel hopeless, there is a shining light at the end of the tunnel.
You don’t have to go through these unnerving times on your own.
Stone Law Firm specializes in bankruptcy and helping you through this tumultuous process. Contact Daniel Stone, our attorney, today. Let’s get your life back on track.