How do I start over after bankruptcy?

Assuming you have either had your qualifying unsecured debts discharged with Chapter 7 bankruptcy or you have completed your Chapter 13 bankruptcy repayment plan and your qualifying debts have been paid or discharged, you are in the perfect position for a fresh financial start.

The first and most important step, however, is understanding why you were facing a financial crisis in the beginning. Was it simply bad luck? For instance, did you have a once in a lifetime medical crisis that was wholly unexpected which blindsided you and left you financially reeling? Or did you make series of bad financial decisions that left you facing a financial crisis? The answer to those two questions will determine how you start over after bankruptcy. Let's discuss both issues.

Bankruptcy after the unexpected

If you filed bankruptcy due to an unforeseeable event including death, divorce, job loss or medical crisis, it is very likely that you were doing all the right things financially prior to your bankruptcy filing and your financial actions may only need to be fine-tuned.

For example, if you had a budget, lived within your means, had an emergency savings account and paid off your credit cards fully each month, you may not need to do anything differently than you did prior to the bankruptcy filing. You will, however, need to be deliberate about staying the course and improving your credit score.

Bankruptcy due to bad decisions

Now, what about the bankruptcy filer who made all the wrong financial decisions? You know this guy- spends money they don't have, always drives the most expensive car, charges thousands of dollars on their credit card each month and lives pay check to pay check.

What should this person do after bankruptcy? The first step is to create a budget outlining their expenses and income. Next, if their income is greater than their expenses it's time to either increase their income or cut their expenses.

Next, some experts would suggest creating a system to live on cash and avoid using credit cards. Others might suggest meeting with a financial advisor. Either way, this individual will have to change their behaviors or they will be in the same predicament a few years down the road writing to me asking how long they have to wait to file bankruptcy a second time.

Bankruptcy rules have changed

Although many consumers might disagree, I believe making it more difficult to file Chapter 7 bankruptcy was a good decision by our courts. Now individuals must take more responsibility for their actions and not all debtors can simply discharge their unsecured debts through Chapter 7 bankruptcy. Consequences for bad behavior can be a deterrent for future decisions.

As mentioned above, what you should do after bankruptcy will depend on how you got to this point, but making the right decisions can pay off in the future and keep you from filing bankruptcy a second time.