Small Business Ideas & Small Business Marketing: What Should I Do After Bankruptcy

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April 3, 2007

What Should I Do After Bankruptcy

Depending on your perception, life after bankruptcy can be either positive or negative. On the positive side, debtors can apply for credit cards and other types of loans and they usually get approved for them. On the negative side, a bankruptcy will stay on your credit report for 7-10 years, depending on which chapter you choose to file. For purposes of getting a home loan, your bankruptcy will always show up and you will have to pay higher interest rates than a typical home loan. Although it is sometimes a necessary evil, it is important to exhaust all other options before deciding on this as a last resort.

One of the biggest complaints that people have about bankruptcy for the sake of a new start is that it does not change a person's habits. Oftentimes, people get deep in debt because of bad spending habits or because of letting their credit cards and consumer debts get out of control. The actions you take after bankruptcy are vital to keeping the management of your finances under control. This is one reason that bankruptcy does not actually help people. Without behavior change, the majority of filers fall back into the same destructive spending habits that they had before their debts were discharged. Therefore, recognizing that you have a spending problem is vital before considering bankruptcy.

If you file bankruptcy without going through some type of financial management training, you have a greater chance of repeating the same mistakes. New laws require filers to complete a money management course before their debts are discharged. This is a step in the right direction to help people realize how to use credit as a responsible aspect of their finances rather than abusing it until it is too late to climb out of the debt that they have accumulated.

The final step following a bankruptcy is to deal with the negative ramifications it has on your credit. For purposes of getting a home mortgage, bankruptcy will stay on your credit record for the rest of your life. This could be bad news for the interest rate or the repayment terms of your mortgage even several years after bankruptcy. If you file bankruptcy due to one single major setback in your life, such as an illness that resulted in huge medical bills or a job loss, some mortgage companies will work with you. While it still shows up on your credit, mortgage companies that do manual underwriting can customize your home loan and they will consider your specific situation. Be sure to save any papers related to the event so you can present them to the mortgage company when it is time to buy a home.

The choices you make after bankruptcy can affect your financial future. Realizing what put you into debt in the first place is your first step to moving on from the bankruptcy and making sure it does not happen again. Although it can have a negative impact on your pride or self-image, dwelling on the bankruptcy is neither helpful nor productive, so moving on with your life is the best thing to do. This is especially true if your financial troubles were a result a single life event. Recognize the mistakes you made and take measures to ensure that it does not happen again.

Posted by David at April 3, 2007 5:46 PM