Life After Bankruptcy

There is a stigma behind that word. Bankruptcy is a topic many people prefer to avoid. They feel they will be judged by others. In reality, it is more common than you might think. Most of the world’s great entrepreneurs have lived through a bankruptcy experience. That is why one of the defining traits of an entrepreneur is being a risk taker. They risk going under (among other things).

In simple terms, bankruptcy is the inability to meet the payments you owe your creditors. It usually requires selling property, production units, and assets to repay the money you owed.

There are two types of bankruptcy: business and personal. We are going to focus on life after a personal bankruptcy.

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What happens once I have filed for bankruptcy?

When you are considering filing for bankruptcy because of excessive debt, you will probably wonder what life looks like afterward. Will you be able to get a loan for a car or a house again? Will you be able to use a credit card? And will you be treated like an outcast for the rest of your life?

The good news: it is possible to live a good life after bankruptcy, as long as you put the right plans in place to manage your money efficiently and stay clear of financial trouble. Understanding and avoiding the choices that got you into trouble in the first place is the first step toward a successful life after bankruptcy. You will need to create a manageable budget, something you can live with and that lets you pay every bill on time. And you will need to take extra steps to start repairing your credit score right away.

Step 1 – Create a budget

If you have never done it, it is never too late to start. You must learn to create a monthly budget and follow it with real discipline. If you do not know how much you earn, how much you spend, or how much you save each month, you cannot make smart financial decisions. That is what keeps you from repeating the same mistakes that led to bankruptcy the first time.

Step 2 – Save money for emergencies and future plans

Saving gives you two major advantages:

1) It forces you to watch your money and avoid overspending

2) It gives you funds for emergencies so you do not have to reach for a credit card and restart a debt spiral.

Saving gives you control over your finances, frees you from money stress, and lets you live without that knot in your chest every time you need to spend.

How do I raise my credit score after bankruptcy?

Step 1 – Pay your bills on time

Not every outstanding bill will be included in your bankruptcy filing. Usually only the ones you cannot pay are included. Keep paying the rest on time to hold a stable level on your score.

Step 2 – Do not trust “Credit Repair” agencies

Those agencies promise to raise your credit score, but their business rarely gets you back into good standing, and they usually start charging you and lock you into a new debt spiral.

Step 3 – Get some form of credit

One way or another, you need to obtain a type of credit. It is the only way the credit bureau can reassess your level. If no bank will give you a traditional credit card, look for solutions with lower-tier credit companies such as Vexi. Those companies offer limited, low credit lines, but they let you get a foot in the door so the bureau can review your score.

There are also loans and secured credit cards that require a security deposit, carry a higher interest rate, and still help you improve your score.

Step 4 – Find a job you can stay in for a good while

Changing jobs every three months is not a problem for the credit bureau and does not affect your score, but lenders who issue loans or credit cards check your employment history. If you look unstable professionally, they may assume you will be unstable financially as well, and of course it becomes hard to approve credit for someone in that position.

Step 5 – Pay your new bills on time

Once you have a card (secured or not), always pay it on time. A single late payment can show up on your score. So make sure you use your credit card only when you know you already have the money in your checking account to pay it off.

Step 6 – Keep your card balance low

It does not matter if you only pay the minimum each month. If you owe, for example, 50,000 MXN on your card and pay only 5,000 MXN, your credit report will still show a remaining debt of 45,000. What counts is how much you charge to the card each month, not how much of the balance you pay down.

Step 7 – Stay calm

In the end, rebuilding your credit score and returning to solid financial health takes time. If you rush, you will make mistakes. Take your time and you will get back to the normal level you had before. Many people file for bankruptcy every year, and many of them return to a normal life within one to three years.