Bankruptcy is going to leave a bad taste in your mouth for years to come, it’s a fact. If you have read the news lately, then you know that bankruptcy courts are working overtime to process the growing numbers of bankruptcy petitions being filed. This may leave you wondering now how to recover from bankruptcy after being discharged. Consumer bankruptcy has its advantages but there is a recovery period and the process maybe slow.

The fact of the matter is that it is now a done deal, you’ve filed for bankruptcy and you’ve been discharged and although that was somewhat of a relief initially, you are now facing a bleak future with your new credit. There are some things you can do for yourself to help you get through this and recover from bankruptcy in a progressive manner.

Reestablish credit with a bankruptcy credit card – It’s not that you can’t get credit anymore, it’s that you don’t qualify for a good rate. Because creditors who will consider your application are in fact taking a chance on you. So they invented programs where you can get a credit card again and this is an important move in recovering your credit. This is often referred to as a bankruptcy credit card, you just have to pay more on your interest rate. Much more sometimes. it’s not unheard of that creditors will charge anywhere from 19% to 29% for these types of programs. So do some digging but always shop around and try your best to get the best deal. Once you do get your new credit card, use it only for necessities and emergencies. Do not take cash advances unless it’s a true emergency and always pay on time. Reestablishing a positive record of credit transactions will begin the recovery process for your credit and soon enough you’ll forget that you filed bankruptcy.

Check your credit history often – This is something that a lot of people overlook, they think that because their credit is ruined they should not bother to check it anymore. You may find that your credit will have more mistakes after filing bankruptcy. Sometimes after bankruptcy some of your debts will remain recorded in default on your credit report, when they should be labeled “included in bankruptcy”, if this is the case then you need to take the necessary steps to fix this, because if the entires remain in default no one will ever lend you a penny. Also collections accounts may appear especially if your debts were sold to collections agencies and then your debts were discharged in bankruptcy. No creditor will ever bother to make sure that your credit is updated correctly and since they won’t be getting paid the last thing they’re going to do for you is a favor. So make sure you use the credit bureaus dispute systems to get these entries corrected. Next, you need to sign up for credit monitoring from one of the three credit bureaus for a fee or sign up for your annualcreditreport.com, for free, which you can only do once a year, but you need to get something.

Be on the alert for shoddy deals – Lenders will access public records to target filers of consumer bankruptcy, this is a well known fact because your bankruptcy file is public record and anyone can access them. They access these records so that they can offer you credit, auto deals, and even home financing. Often they will emphasize that your credit does not matter and they can finance anyone. You MUST be very cautious with these deals. They are geared to making lots of money from desperate people. This is not a good way to start recovering from bankruptcy. Read these terms carefully and ask all the questions you can and if it does not feel right to you then don’t do it. Keep looking and you’ll eventually find a creditor with a better deal, it’s a bit tougher and the choices are limited but you have to realize that you could be getting yourself into more trouble financially than actually helping your cause. Remember that always, these companies would not come after you if they didn’t have something very valuable to gain. They are never acting in your best interest.

Consult with professionals and get support – You don’t have to have a lot of capital to go to a financial planner, they’re there to assist everyone. After your bankruptcy discharge you should be clear of your some debts or repaying them under better terms, you should be on a tight budget and making sure your extra cash is going some place where you can’t touch it. You won’t always have the knowledge to know how to invest your money and you may not always know what kind of budget you should adopt to start making significant improvements, that’s why financial counselors are there. You won’t be able to recover from bankruptcy if you don’t adjust your budget considerably. It’s all about change and it’s all about looking back at where you were before and where you are now and most importantly what you can do to ensure your future brightens up. Consult a professional and ask them to work out a good reasonable budget for you and then stick to it, do not negotiate with yourself and do not compromise. This is how you’ll avoid bankruptcy again.

Think about your future and your family’s future – This also means setting goals, you may have had plans to retire at a certain age. You can still accomplish these things if you continue to work on your attitude about money. Bankruptcy is not the end, it is the beginning of something new. If you continually focus on the future you’ll naturally begin to take action towards accomplishing those things, but it must be a constant effort and your behavior with your money needs to show it. If you do not see yourself advancing in the right direction you can always stop and study your plans again and make the necessary changes. Always stay in touch with your financial counselor and bring up any questions or concerns. You should not be investing aggressively, you should be investing consistently to help you recover from bankruptcy.

Change your attitude and practice discipline - What you did before obviously did not work too well. Maybe you always thought that it was ok to buy things you needed on credit. Maybe you thought it was a good idea to finance your home with a sub-prime loan and pay interest only and maybe you only made the minimum payment on your credit cards. Since none of those things proved to be wise decisions and only lead you bankruptcy, it’s time to change your habits, change your way of rationalizing when it comes to making purchases from now on. There’s a difference between needing and wanting something, but we often make ourselves think that what we want is what we need. You had everything to do with the decision making process in your finances so start with that and change it completely. Bankruptcy protection is over with, if you end up in serious debt again, there will be nothing anyone can do for you.

In the first article of this series I pointed out some very basic yet often ignored personal trends on handling money. When it all adds up, which it will, you often wonder why and how you got to amount so much debt. Where did it all come from? and what material possessions do you have to prove that you spent it? These are the things you should never do with money and often ignore. These habits have led many into serious financial debt and even bankruptcy.

1. Don’t buy things out of impulse – Going back to the first article I mentioned how we as consumers are targeted everyday and the efforts by commercial entities to market their products are so sophisticated that even human psychology is employed to more effectively entice consumers. What ultimately happens then is that your impulses take over your better judgment and you make the purchase. How many times does this happen to you? Exercise discipline with your finances, minimize your shopping trips and train yourself to ignore the trends and temptations to keep up with them. Make a distinctive evaluation of the product you intend to buy and determine if it’s something you actually need. People have conditioned themselves to negotiate their wants into needs and it’s a habit that only leads to high credit card balances.

2. Ignoring your savings account – If you aren’t actively and systematically saving money in a savings account, then hopefully you’re doing it via your employer’s 401K plan and contributing the most you can in order to get a match contribution from your employer. If you aren’t doing either, then most likely you’re living the paycheck to paycheck routine. Why is this dangerous? Not saving money means you have nothing to fall back on if you were to have an emergency or if you were to lose your job. You may think you can rely on family members to help you, but that only transfers the burdens of your debt on to others. The worst part of not having a savings account is accumulating debt on top of not having any of your own money. It’s a bad habit and it doesn’t prepare you for anything.

3. Paying the minimum payments on credit cards - If you are actively using your credit cards for what you’re judging as necessities you may also be brewing a storm. Credit cards are so heavily marketed that people forget what they’re really for. They’re not so you can get the latest gadget now because you don’t have the cash, they’re not so you can finance your ski trips, they’re for emergencies! Oh yes the credit card company forgot to tell you that I’m sure. If you’re only making minimum payments on your cards, you’re more than likely doubling the total amount owed when it’s finally paid off. The problem with these habits is that sometimes you make yourself feel good by sending a larger payment one month and then think that you’ve caught up, and then you use the credit card again. These are bad decisions and you can find yourself in the kind of debt that often leads to bankruptcy. Pay down your balance, never mind what the credit card company says about the minimum payment, send larger payments and pay that balance down.

4. Lending money to friends and family – You may not want to hear this one because you’re probably very close to your family and your friends may even be like family to you. But lending money to your friends and family can get you in trouble as well. Ask what they need the money for to begin with, people get themselves in trouble financially for a lot of reasons if they are real need then you can certainly make an exception. But you should never support any kind of debt that involves gambling, leisure spending or just any other kind of activity that isn’t a necessity. Lending them all you have can hurt you and put you in a really tight spot financially. This one can be a challenge so careful not too let you feelings take over your better judgment.

5. Never co-sign a purchase contract with someone else – Your mom or dad may have done it for you in the past and you may think that this is ok to do if someone doesn’t have the credit. One thing that is often overlooked in this situation is that if the person who needs you to co-sign for them defaults on payments to whatever it is they’re financing, you are now responsible for those payments. The creditor will come after both of you or whoever can pay the bill. Should you fail to pay for your friend or family member, your credit will be hit with late payment or defaults damaging your credit history. It’s not uncommon that bankruptcy results from such situations for innocent parties who were only trying to help out. Creditors only care about collecting payments and if you’re name is on that contract you’re on the hook.

LLCs or Limited Liability Corporations are legal business entities that offer limited liability ownership to its members, meaning that the owners or members are not personally responsible for the debts that the business incurs. At least in theory that’s the case. An LLC that finds itself in a situation where it is not being profitable and debts are running high, can also find relief in filing bankruptcy. However, it is often common that when LLCs are first formed, the owners don’t realize that they may have made themselves liable for the debts of the business by making personal guarantees for the debt that funded the company.

Normally lenders will use the Tax Identification Number of the LLC to extend credit. LLCs are not always profitable, especially when they’re first starting out, and in order for a lender to accept applications and begin processing the requested credit the business either needs to be profitable for the lender to proceed without any additional guarantees, of course these policies will vary by lender. When that criteria is different, normally the lender will still proceed with approval if the owners of the LLC are willing to make personal guarantees for the loans or credit lines. Often this is not explained in great detail or is in small print on the paperwork you sign.

Should this be the case with you, and you see your business taking a turn for the worse, you need to consider this option carefully before you continue with declaring bankruptcy for your LLC. This is something that’s often overlooked during the formation of such business entities. Again lenders don’t always emphasize this point because as long as they have good backing for their money, they don’t care who’s on the hook. So if your LLC files for bankruptcy this will likely extend to you, meaning you may also have to file bankruptcy, otherwise since the liability falls on you, you’ll have to repay the debts yourself.

Be 100% certain that you’re not personally liable for the debt before you proceed, review the paperwork you signed when your loans or credit lines were processed and see if your social security number appears anywhere on the application or approved paperwork.

Only when you find out the structure of the loans or credit on your business, you can begin addressing the problem with a new perspective. If your business debt has a personal guarantee then you should consult a bankruptcy attorney for a better approach to the problem. Your attorney will be able to study the paperwork more efficiently. In a case like this you would not want to prepare and file you’re own bankruptcy petition, you will run into too many obstacles and doubts and may end up filing the wrong paperwork or submitting the wrong information, which again only you will be responsible for.

At the very least consult with a bankruptcy attorney if you feel your LLC is in trouble and you need to get the debt sorted out. Your best option in this situation would be to file bankruptcy chapter 11, you can repay the debts of your business under more manageable terms while your bringing your business back to a profitable state.

Personal bankruptcy cases are on the rise. Hundreds of thousands of Americans declared bankruptcy in 2007 and the rate of filing has not slowed down in 2008. A tough economic state and lack of stable employment and job security are only part of the reason. Personal spending habits have certainly contributed to record levels of credit card debt and the current housing market has left many with high balance loans and depreciating values in many parts of the country.

Filing for personal bankruptcy is a tough decision and whatever the circumstances may be for you, it’s important that you educate yourself as much as you can and carefully assess your own financial situation before you proceed with filing bankruptcy. There are several types of bankruptcy that cover not only individuals but small and large businesses and of course special codes for corporations. Chapter 7 and Chapter 13 are the two types of personal bankruptcy and the most commonly filed, Chapter 11 is similar to chapter 13 though this is what an LLC, partnership or corporation would want to file.

This is a quick explanation of what filing bankruptcy is all about, what it does and the effects it can have on your financial future. Please check out the links above for detailed explanations on bankruptcy chapter 7, chapter 13 and chapter 11.

Please take note that none of content here is meant as legal advice nor is it intended to encourage anyone to file for bankruptcy. This option should be a last resort, there are alternatives to bankruptcy that you should consider before filing.

What is bankruptcy?

Bankruptcy is a legal proceeding in which people, companies or corporate entities who can no longer afford to pay their creditors, can get protection through a court order called “The Order of Relief”. Bankruptcy offers a fresh financial start and these benefits are afforded to all by federal law, therefore all bankruptcy cases are handled in federal courts. Bankruptcy puts into effect the order of relief also known as the automatic stay which stops your creditors from attempting to collect payments from you, that is until your debts are sorted out through court proceedings. The automatic stay is further explained in the Chapter 7 page.

During the process of filing bankruptcy you will need to provide specific documentation such as past tax returns, proof of income, a breakdown of all your debts, all property and assets you own, etc. It is possible to file your bankruptcy case alone but the paperwork is complicated and can be confusing. Hiring a law firm that specializes in personal bankruptcy cases is usually the best thing to do. These services aren’t always cheap though, and if you’re struggling to pay your creditors you may have trouble paying the fees for these services, which often need to be paid up front. So it’s important you prepare in advance and allocate some funds early on when you begin to consider filing bankruptcy.

There are a few chapters in the US bankruptcy code. Chapters 7, 9, 11, 12, 13, and 15. You will get a detailed explanation of chapters 7, chapter 11 and chapter 13 on this site since they are the most common forms for individuals, partnerships and small businesses. It’s easier for a bankruptcy attorney to determine which bankruptcy chapter you qualify to file, however by learning about what each chapter does and how they work you will get a good idea for which one will fit you best. Here’s some of the information you’ll need to provide before you file:

What happens after bankruptcy?

Neither one of these chapters will make it easier on your credit once you get a bankruptcy discharge. The difficulties after bankruptcy obtaining credit, renting a place to live, and qualifying for certain jobs will be the same. Unfortunately the fresh financial start can be hard to embrace when you file bankruptcy since it takes time to rebuild you financial life again. The hardships can continue if you do not prepare to file bankruptcy in advance. Normally after bankruptcy, most credit providers will not want to deal with you. The ones who will, can impose high interest rates and/or high security deposits because of your recent bankruptcy case.

When you file you will be required to take bankruptcy counseling courses, also known as credit counseling, from an agency approved by the US Trustee . You can find a list of approved agencies at this link: US Trustee Approved Credit Counseling Agencies. The costs are usually moderate, $20 to $30 dollars should be a good range to stick to. You will need to take the first part of this personal bankruptcy training before filing and then the second part before you get discharged.

Consider your case carefully and don’t forget that there are bankruptcy alternatives that depending on your situation may be feasible options to consider before going through with filing your case.

Should I file bankruptcy? What’s a good alternative to bankruptcy?

By now you know that filing bankruptcy should be your last resort. Coming up with an alternative to bankruptcy when you’re stressed and losing sleep can be difficult so here’s some help. But outside of what is listed here, whatever options you believe are possible, research and consider all options to decide whether that alternative is realistic and feasible for you. The following are some of the most common alternatives to bankruptcy:

Renegotiate with your creditors: This can be a successful bankruptcy alternative when dealing with unsecured debt, make them understand that if renegotiating is not possible, they will lose all the money you owe them if you have to resort to personal bankruptcy. This, as you know, is the case with unsecured debt under bankruptcy chapter 7, it gets discharged with no further obligation to you. Secured debt on the other hand will be a little more complicated but still possible. Your home lender or car financing company will know that they must wait around without your payments for months if you have to file bankruptcy. So they may listen to your case but are more than likely going to try to take you through a refinancing deal, which could actually accumulate other costs. So be careful there, this is a renegotiation that needs to benefit you the most.

Debt Consolidation Services: This also could work out well for your unsecured debt, but not all debt consolidators work the same so you need to shop around. You must also be careful with the terms of this deal, some debt consolidation alternatives will cost you more for the simple plan of grouping all your debts into one bill. Many of these agencies can really help, but there are many that only pose as non profit organizations for debt consolidation and are only interested in profit, so do your homework and research them before you agree to anything. You must insist on better rates and this can be an excellent bankruptcy alternative especially if your credit is still in good standing.

Debt Reduction Lawyers: Depending on your current budget this can be an effective bankruptcy alternative as well, since a lawyer would be much better at negotiating terms and rates for you, a creditor will likely respond better to talking to a lawyer than talking to you directly. A lawyer can deal with every single creditor for you and help you take advantage of special provisions and hidden laws and tricks that creditors don’t like consumers to know, but are legal. Your local yellow pages book will have tons of listings for law offices that can provide these services.

Professional Credit Counseling: One of the most common services to consumers and not necessarily a bankruptcy alternative in all cases. If you don’t see the end near you yet, but you see the direction your finances are taking and are uncertain about what to do to avoid collision, professional debt counseling could be what you need. A professional credit counselor is going to suggest drastic changes in your financial routines. They’re not going to ease you into these changes, they will most likely be very straight forward about what needs to change. It is up to you enforce these changes and make this alternative work or you could in fact end up filing bankruptcy

Other sources: Other sources of help may be possible, you may have volunteer groups in your area of perhaps you local church may be able to direct you in the right path. People in these groups are often able to help without charging anything if they offer services. Whatever option you choose, please take care not to simply borrow more money to repay debts, by doing this you’re simply shuffling balances around to temporarily satisfy debts, while accumulating debt in other areas, not really a good bankruptcy alternative.

Don’t let anyone talk you into taking out a line of credit on your home, especially if you’re dealing with unsecured debt. If you do this, you will have taken that unsecured debt and made it secured against your property. Most lenders will tell you this is a good idea. Their job is not to give financial advice, their job is to sell and they sell well because often people don’t know any better, so this is also not a good bankruptcy alternative.

If none of these options seem feasible to you for whatever your circumstances, then it is probably best that you begin your process by first consulting with a bankruptcy attorney. Get all the facts about your case. Not all cases are the same, the conditions will depend on what you owe, what assets you have and whether you’re employed or not. Consult with at least three different attorneys, most consultations are free and you’ll find that some law offices are more personable and more sympathetic than others. During this consultation take the liberty to ask your attorney for any bankruptcy alternatives he or she can recommend, again they may be able to come up with something you haven’t thought of.