Moving from bankruptcy to a better financial position in a short time.

Many times bad things happen to people who have tried to do the right thing but circumstances moved them into an area of financial peril. Most times this path of peril was self inflicted. Other times a massive medical problem or an act of God type disaster became more than the family could bear. The results of the lack of financial discipline for, whatever reason, abounds. Once a person or family has gone through the financial ringer, unless you love stress, creditor calls, threatening letters and even judgments, it is something they do not want to go through again.  What to do?

Debtor prisons are no longer allowed. The choices are to do nothing and have zero credit, work with the creditors to make a payment arrangement or consider and utilize personal and/or business bankruptcy.  Individuals can choose Chapter 7 (the most severe) or Chapter 13 ( a repayment plan administered by a trustee of the Bankruptcy Court). With the new Federal Law, higher earning wage earners will be pressed to look at the Chapter 13 option. Many times this is at a reduced amount  from the original debt. In any case, if this option is chosen, then what to do after the fact?

To reestablish credit and get back on the path to financial well being requires discipline and the desire to avoid what caused the prior credit problems. Credit evaluation is utilized for everything and touches just about all who have any needs. For example, need car insurance, your credit will be pulled. Need a job, probably the prospective employer wants your permission to peek at your credit. Need a different home and need financing, there it is again, credit. Need to refinance your mortgage, your credit rating is front and center. If it is challenged credit, there is a great chance that your car insurance will carry a higher rater OR you will be denied. Home mortgages will be higher if your credit score is low with lots of derogatory information posted in your file. It may mean that you don’t get the job because you have a lot of financial baggage, which in the employer’s mind may pose too much stress on you to do a good job. Auto insurance companies have tried to cite studies that people with challenged credit are involved in more auto accidents. Discipline? Who knows?

If someone finds themselves in this position, how can we turn it around? First, a family budget must be structured and adhered to. Secondly, if there not enough money to go around, either reduce spending or get an additional job or another high paying job or all of the aforementioned. There are no shortcuts. All remainder installment loans must be paid on time with ZERO lates. This especially includes mortgages or rental payments. With 12 months of on time payments, your credit scores will start to move up as you are earning your way back in to the financial community as a person who pays his bills on time. If you are in a Chapter 13 repayment plan, there can be ZERO lates on this program, If you want to raise your scores. Rather quickly, your credit will rise and you can build from there, with competitive auto insurance rates, better mortgage rates, and be held in better opinion by the entire financial community.

After a Chapter 7 or Chapter 13 Bankruptcy, fairly quickly you can get your credit scores up and start anew. There are no debtor prisons any longer. However, with falling credit, you might think you are now in an isolated “debtor colony.” Fortunately, it does not have to be permanent and it’s not fatal. You can chose to start over and grow through the process vowing not to revisit this situation again. Everyone has choices.