You may have thought of bankruptcy as the last alternative, something to avoid at all costs. However, unfortunate events sometimes occur and they can wreak havoc on even the most sensible budget.
If you are considering bankruptcy, your biggest fear is likely uncertainty about the future. Here are some things you may expect after going through the bankruptcy process.
The biggest advantage to bankruptcy is that it frees you from the overwhelming debt that you were likely struggling with for months or years. Depending on your circumstances, you may be able to keep many of your most important possessions such as your house and car. You may be able to spare certain other assets, such as your retirement accounts and some savings.
Bankruptcy does carry some drawbacks. Insurance may go up. Securing rental housing may be difficult. Many rental companies examine an applicant’s financial background. Increasingly, employers also perform credit checks on potential employees; such checks show everything but your birthdate and credit score.
Your credit rating was probably suffering long before you thought about bankruptcy. When you file, it takes another hit. However, you can being rebuilding your credit within six months after the courts award you bankruptcy protection. Start by applying for a secured credit card that reports to credit agencies. Use 30% of your credit limit and pay it off each billing cycle. After six months to a year, you should qualify for an unsecured credit card. Use it sparingly and pay in full each month.
Bankruptcy does not bar you from owning a home, though it is smart to wait several years before trying to buy. When you start shopping, look at homes you can comfortably afford. Do not take out the biggest loan you can. Instead, try to keep your mortgage payment around 25% of your net monthly income.
Remember to shop for your mortgage as carefully as you do for the house itself; secure the lowest interest rate possible. A difference of even half a percentage point can make a huge difference in a 30-year loan.