Relief and a prosperous financial future are the goals after filing for bankruptcy. However, many filers may feel intimidated or lost after completing the process and may not know where to start to rebuild their financial stability. To restore your credit and develop better financial habits, it’s important to have a well-defined plan and do some financial planning after bankruptcy. Here are crucial steps to follow to ensure your long-term success.
Budgeting is Key
Budgeting can feel tedious, especially after going through the process of bankruptcy. It takes recognizing your spending habits and evaluating if they contributed to your previous financial struggles. However, the importance of budgeting cannot be understated. That is because a common cause of people falling into debt is unexpected expenses.
Even if you can only set aside a small amount each month, having an emergency fund can aid in preventing you from relying on credit cards or loans when inevitable unexpected costs arise. Aim for at least three to six months’ worth of living expenses over time.
Common Budgeting Methods
To get you started on your budgeting journey, here are some common budgeting methods you may want to consider:
50/30/20 Budget – Allocates 50% of income to needs (rent, utilities, groceries), 30% to wants (entertainment, dining out), and 20% to savings and debt repayment.
Zero-Based Budget – Ensures every dollar has a purpose by assigning all income to specific expenses, savings, or debt payments, leaving a balance of zero at the end of the month.
Envelope System – Uses physical cash envelopes for different spending categories (e.g., groceries, gas, dining out). Once an envelope is empty, no more spending in that category is allowed until the next budget cycle.
Pay Yourself First – Prioritizes savings by automatically putting part of your monthly income into savings accounts before covering other expenses.
The 80/20 Rule – Simplifies budgeting by following the rule of allocating 20% of income to savings and debt repayment, while the remaining 80% covers all other expenses.
Reverse Budgeting – Focuses on financial goals first by determining how much to save or invest, then using the remaining income for expenses.
Incremental Budgeting – Adjusts last month’s budget by small increments based on financial changes instead of starting from scratch each month.
Value-Based Budgeting – Prioritizes spending on what brings the most personal fulfillment while cutting unnecessary expenses.
Rebuild Your Credit Responsibly
It is no secret that bankruptcy impacts your credit score. However, once your debts have been discharged, you can start fixing it with responsible financial habits:
- Apply for a secured credit card – These cards require a deposit that serves as your credit limit, making them a safer option for rebuilding credit.
- Make all payments on time – Payment history is one of the biggest factors considered when calculating your credit score. To ensure you always make timely payments, choose automatic payment options to help you stay on track.
- Keep credit utilization low – If you get a credit card, avoid maxing it out. Try to use less than 30% of your available credit.
- Learn more about how to Improve Your Credit Score After Bankruptcy
Putting It All Together – Financial Planning After Bankruptcy
Rebuilding requires a combination of financial planning after bankruptcy, discipline, and consistent effort. Creating a budget that fits your lifestyle, building an emergency fund, and making responsible credit decisions will help you regain financial stability. While the bankruptcy process may feel overwhelming, focusing on these steps can help you regain control and set yourself up for long-term success.
Considering Bankruptcy? Speak with an Experienced Lawyer
If you are struggling with overwhelming debt and considering bankruptcy, consulting an experienced bankruptcy lawyer can help you understand your options and safeguard your financial future.
Adam M. Freiman has over 25 years of legal experience and has helped many individuals navigate the bankruptcy process. If you’re struggling with overwhelming debt and need guidance, contact our office today to explore your options and take a step toward financial relief.
