Filing for bankruptcy is a highly traumatic experience for most people. Even though it is usually the best way to make a fresh start financially, it can be harrowing.
Of course, everyone’s circumstances are different and people opt for bankruptcy for different reasons. But the one thing they have in common is debt. Commonly, when people decide to file for bankruptcy, whichever type they choose, it’s because they have either been living beyond their means, because their business has failed, or some sort of investment has turned sour.
Many people live on credit and when they are unable to pay accounts or loans it impacts on their entire lives. While not everyone in debt is a candidate for bankruptcy, long term it can be a life saver. An experienced bankruptcy attorney or a credit counselor is the best person to assess the pros and cons of bankruptcy for you.
Having opted for bankruptcy in Georgia, you’ll either get rid of your debt and start with a clean slate (Chapter 7) or you’ll be locked into a three- to five-year repayment scheme (Chapter 13) that will help to get your finances back on track. Either way, it is essential to start saving after bankruptcy so that at very least you will accumulate an emergency fund you can fall back on if and when things get financially tough again.
Tips to Start Saving After Bankruptcy
You have just been declared bankrupt and now you’re being told to save. Here are some tips to help you:
- Establish a forced savings system
- Save via a retirement plan
- Invest in a college plan for your children
- Use your mortgage payments as a forced savings scheme
Unless you are genuinely living hand to mouth and have no assets, you can save money, even if the amount is minimal. But you might need to force yourself to do this. The concept of forced savings is one that works for many who have been declared bankrupt.
In fact, if you opted for a Chapter 13, you’ll already be used to putting a certain amount aside for disbursal to creditors.
What you do is to set up a formal system with your bank that automatically deducts a predetermined amount from your salary or income monthly and places it in a savings account of some type that will earn interest. Then, as you continue to pay into the account the compound interest (which is interest on the interest that accrues on the account) will grow your savings slowly over time.
There are various retirement plans you can invest in, including those where employers match your contribution. These are popular with employees especially because they are tax deductible.
If you are self-employed, which is often the case with people forced into bankruptcy by business failures, you have the option to establish an Individual Retirement Account (IRA) that allows you to put money away to fund your retirement. Although there are tax issues depending on age, income, and other factors, some IRAs enable those who have retired to draw money tax free.
One of the scary issues for many parents in debt is their lack of ability to pay for their child or children’s education. If you are a parent who has filed for bankruptcy a good way to start saving for your child’s education is through a college savings plan that allows you to accumulate funds tax-free while you save. Alternatively, opt for a plan with tax-deductible contributions.
Save Via Your Mortgage
You don’t have to lose your home if you opt for bankruptcy. Georgia bankruptcy laws offer a homestead exemption if you file a Chapter 7, as long as the house isn’t worth more than the mortgage. And a good bankruptcy attorney will help you save your home if you file a Chapter 13.
So, if you own a home, this is one of the best avenues to use to save money after bankruptcy. All you have to do is continue to regularly pay the money you owe the mortgage holder. In fact, as your financial situation stabilizes (as it should) try to pay a little more each month than you need to.
As you pay off your mortgage debt and the house increases in value, your asset will grow. Just be sure that you keep paying all your other bills too.
Rebuild Your Credit Rating
After you’ve been declared bankrupt it is difficult to get credit – and it may be the last thing you want right now. But it really is important to re-establish a good credit rating.
First of all, establish a realistic budget and keep to it. Keep your living costs as low as possible and don’t be tempted to buy luxuries. Put as much as possible into a savings account. Sell items you don’t use and put that money into savings as well.
Don’t be tempted to use your savings unless it is an emergency – a real emergency!
Apply for a credit card. This might seem counter-productive, but it doesn’t mean get a card so you can go on spending splurges. Rather, it means that by having a credit card and using it responsibly – and paying it off in full every month – you can build up a good credit reputation. Just be aware that it’s unlikely you will get an unsecured card right away.
Lastly, check your credit report regularly to make sure there are no errors.
If you are planning to file for bankruptcy in Georgia and need advice contact the legal consultants at C. Golden & Fleming LLC today. We are the Atlanta bankruptcy specialists who care.