Surviving Bankruptcy Financially

Filing for bankruptcy can be an overwhelming experience. It may feel like your financial life is ending, but bankruptcy can actually be an opportunity for a fresh start if you approach it strategically. This article will provide tips on how to financially survive the bankruptcy process and rebuild in a healthy way after discharge.

The Bankruptcy Process

There are a few different types of bankruptcy filings, but the most common for individuals are Chapter 7 and Chapter 13. Here’s a quick overview of how each works:

• Chapter 7 – This is known as “liquidation” bankruptcy. It involves surrendering most assets that are not exempt in order to have eligible debts discharged. Exempt assets like a primary home, car, retirement accounts, etc. can be kept.
• Chapter 13 – This is “reorganization” bankruptcy. It allows you to keep assets like your home while repaying a portion of debts over 3-5 years through a court-approved repayment plan. After completion, the remaining debts are discharged.

Either type of bankruptcy starts with filing a petition with the bankruptcy court. This includes forms like schedules of assets and liabilities, a statement of financial affairs, and more. Filing the case “automatically stays” most collection actions against you.

The court will appoint a trustee to oversee administering the case. There is usually a meeting of creditors where the trustee and creditors can ask you questions about your finances under oath. After that, if you qualify, the court grants a discharge order that releases you from liability for most debts.

The whole process typically takes 3-6 months. It’s important to work with an experienced bankruptcy attorney throughout to ensure proper filing and completion.

Prior To Filing

There are some key financial steps to take prior to filing bankruptcy to make the process smoother.

• Stop using credit cards & close newer accounts – Your payment history is frozen when you file, so new charges or balances can hurt you. Close accounts opened in the past few months as the trustee may reverse large payments made before filing.
• Pay down exempt assets – Try to use available funds to pay down exempt assets like your car, house, retirement accounts. This reduces liabilities without losing assets.
• Sell non-exempt valuables – Things like jewelry, collectibles, recreational vehicles, etc. may have to be surrendered. Selling them beforehand and using proceeds to pay down exempt assets is wise.
• Save up cash – Having cash available after filing helps cover living expenses as you rebuild credit. Aim to have a few months of savings if possible.
• Consult an attorney – Getting expert legal advice prior to filing is crucial. They can help structure your finances to maximize exemptions.

During Bankruptcy

Once your bankruptcy petition is filed, here are some dos and don’ts to keep in mind:

DO:

• Be honest and transparent with the trustee – they just want the full financial picture.
• Continue making payments on exempt assets like your home and car loans.
• Open a new checking account to use post-filing – old accounts may be frozen.
• Keep copies of all statements and correspondence from the court or creditors.
• Consult your attorney if any questions arise during the process.

DON’T:

• Hide assets or information from the court – you must disclose everything.
• Pay pre-filing debts without the trustee’s permission – this can be reversed.
• Close credit card accounts opened prior to filing – leave them open but don’t use.
• Apply for new credit until after your debts are formally discharged.
• Miss any required hearings or deadlines – this can lead to case dismissal.

Following all instructions from the court and your attorney ensures a smooth process leading to a fresh start.

Rebuilding After Bankruptcy

Once your debts are discharged, it’s time to start rebuilding your financial life. Here are some tips:

• Get a secured credit card – This helps re-establish positive payment history. Make small purchases and pay off each month.
• Open a new checking & savings account – Shop around for accounts with low fees and minimums. Automate deposits to start saving.
• Review your credit reports – Dispute any errors and make sure discharged debts show a $0 balance.
• Create a lean budget – With discharged debts, build a realistic budget focused on needs vs wants. Save aggressively.
• Hold off on financing – Wait 1-2 years after discharge to finance a car or other large purchase. Build credit slowly first.
• Make payments on time – Set payment reminders for bills and loans. On-time payments help improve your score.
• Monitor your credit – Check reports frequently and watch for score improvements. This takes diligence but pays off.
• Avoid excessive debt – Stick to affordable payments that you can manage. Debt snowballed last time – prevent that.
• Save for emergencies – Build up at least 3-6 months’ expenses in a savings account as a cushion.
• Ask for limit increases – As your score improves, proactively ask issuers for higher credit limits. This keeps utilization low.
• Explore credit-builder loans – These special loans help add positive tradelines as you repay over time.

With diligence and patience, you can bounce back from bankruptcy in 1-2 years. The keys are responsible use of credit, on-time payments, and saving. Consult a credit counselor if you need guidance. With strategic effort, you can survive bankruptcy and thrive again!

Helpful Resources

• What debts can—and can’t—be eliminated in bankruptcy – Consumer Financial Protection Bureau
• What Is Chapter 7 Bankruptcy? – The Balance
• What Is Chapter 13 Bankruptcy? – The Balance
• Credit After Bankruptcy – myFICO
• Secured credit cards after bankruptcy – Credit Karma
• Credit-builder loans – NerdWallet
• Reestablishing Credit After Bankruptcy – Nolo

Bankruptcy can feel overwhelming but taking the right steps both during and after the process can set you up for financial success again. With diligence and expert help where needed, you can survive bankruptcy and continue on the path to stability.