Many people today survive on credit. Even if they’re not living on credit cards, they’re living in houses they bought on credit (and are still paying off the mortgage), and they’re also paying for cars they bought on credit. Many people also have businesses that rely on revolving credit. For people whose lifestyle depends on having credit and a good credit score, the idea of filing bankruptcy can look like the end of the world.
If you’re considering bankruptcy because you’re in over your head with debt, you might be wondering if doing so will be the end of your financial future. The good news is that filing bankruptcy is not the end, and although it takes some time to be removed from your credit report, there is life beyond it.
It’s also possible that your situation may not require filing bankruptcy, and you may want to consider some alternatives before making any final decisions.
Different types of bankruptcy for individuals
An individual can generally file two types of bankruptcy – Chapter 7 or Chapter 13. When filing Chapter 7, your nonexempt assets will be liquidated (sold) and the proceeds will go to pay off your creditors. Chapter 13, however, allows you to keep your property and works with you to create a plan to pay your debts over a period of about 3 to 5 years, depending on your income.
Determining which chapter to file
If you’re an individual with a regular source of income, and you qualify, Chapter 13 might be the best option for you for many reasons, including:
- You can save your home from foreclosure, even if it’s in the process of being foreclosed
- You can have the opportunity to catch up on delinquent mortgage payments
- You can reschedule your secured debts and make payments over the timeframe decided on by filing Chapter 13
- Any co-signers on your consumer debts are usually protected
- Instead of making individual payments to each company you owe, you make one payment to a trustee who then makes the payments to each creditor on your behalf. You will not have contact with your creditors.
Before deciding to file bankruptcy, the best thing to do is contact a bankruptcy attorney to discuss the details of your case because you might have other options. Also, as of 2005, a law was passed that states anyone filing for Chapter 7 or Chapter 13 must participate in a credit counseling program hosted by an approved government agency. Discussing your situation with an attorney will also help you choose the right credit counseling agency.
If you’ve already filed bankruptcy, or are in the middle of navigating the bankruptcy process, here are 4 steps you can take to minimize your stress, and maximize your access to finances in order to get through it quickly and efficiently.
- Temporarily downsize your lifestyle
You can significantly reduce your expenses by downsizing your lifestyle. In today’s society, it’s considered normal to own numerous electronic gadgets and subscribe to a plethora of services like cable TV, internet, mobile phone, mobile internet with a hot spot, and various other monthly services. But all of these services can add up to a lot of money going out on a regular basis. And you don’t really need all of them.
If you can’t bear the thought of canceling your cable TV, or are in the middle of a service contract that will cost you a significant amount of money to cancel, you can reduce the amount of money you pay each month by downgrading your package.
By reducing your monthly expenses, you can pay off your debts faster. Or, if you’ve already made it through the bankruptcy process, you can take that money and open up a secured credit card account and start rebuilding your credit right away.
- Share your monthly internet bill with your neighbors
If you live in an apartment building, you may be able to cut your expenses by sharing your Wi-Fi bill with your neighbor. If you have a high sped connection, you could offer your neighbor access to your Wi-Fi network for $20/month. Or, if they have a higher speed connection, you could ask them if you can access their Wi-Fi connection for $20/month and let them know you’re just trying to cut down on expenses.
The only downside to doing this is that you may not have control over the router or modem if it goes down and will have to rely on someone else to fix it. But the money you save can go toward paying off your bills. And you can always access free Wi-Fi from your local library or even Starbucks.
- Realize it’s okay to live without credit
If you’ve relied on having access to credit to live your life, it can be scary letting go of that. When you’re used to being able to book vacations and trips without blinking, and you have a routine that centers around the use of a credit card, the idea of living without credit can seem foreign. But not everyone lives on credit. There are people who survive without it and do really well.
That doesn’t mean you have to give up your life and move into a small trailer or a cabin in the woods, although that would save you a significant amount of money. It just means that you can make small adjustments to your daily life that make it easier for you to live without creating more debt.
Remember that credit is really debt. The more credit you have, the more debt you have. And after a bankruptcy, the last thing you want to do is create more unnecessary debt.
- Open a new credit account for the purpose of rebuilding your credit
In the beginning, you probably opened a credit account or took out a loan because you needed to buy a home, a car, or something else important. If you’ve already gone through a bankruptcy, or are going through one currently, the best reason to open up another line of credit is to rebuild your credit – not to make unnecessary purchases.
If you’re going to take out another loan, you’re probably going to be considered a subprime borrower which means you’ll be subject to a much higher interest rate. But if you want to rebuild your credit, that’s the price you need to pay.
That doesn’t mean you should take out a huge loan. It just means that if you have the ability to take out a small loan and can afford to pay a higher interest rate, you can start to rebuild your credit by doing so.
- Create a strict budget and stick to it
Creating a strict budget is a common sense approach to debt management, and it’s vital while going through bankruptcy. Creating a strict budget is what will allow you to make your scheduled payments on time.
According to BankRate.com, Kevin Chern, a bankruptcy attorney in Chicago says, “after three to five years of living on a strict budget, Chapter 13 debtors should be much more equipped to manage their money efficiently. In many cases, after 18 months of regular Chapter 13 payments, a debtor can refinance out of a Chapter 13, especially if the debtor has any equity in a home.”
Determining your next steps
If you’re in debt like many Americans are, you may feel like filing bankruptcy is the only solution to get your head above water. And that may be true. However, talking to a bankruptcy attorney will help you make the best decision for your specific situation. Contact Rowdy Williams today for a free consultation to determine the course of action that’s right for you.
Contact Rowdy Williams if you’re considering filing for bankruptcy so you can get expert advice on whether you should file Chapter 7 or Chapter 13, or if you should file at all.