Recovering from bankruptcy or any similar financial disaster requires a family to start over later in life than you’d like. The first step on the road to recovery is to recognize that millions of people have been through this before and survived. Many have truly thrived.
Here are some key steps to help you recover:
Identify the lessons
Many good and noble people go through bankruptcy. It doesn’t mean you are a bad person, worthless or unworthy. Your value as a person is unaltered by bankruptcy. That said, it is wise to look at the facts and circumstances that led to your bankruptcy to identify ways to avoid it. If your bankruptcy was caused by a business failure, you may want to look at ways to limit future business ties to your personal finances. If it was a medical catastrophe, you may want to look for better health insurance. Whatever the situation, you don’t want to miss the valuable life lesson baked into your experience.
As you emerge from bankruptcy, you need to take stock of your situation and identify new priorities. If you lost your home in the bankruptcy, getting into a new one would be great — but financing it will be problematic for another seven years. You should focus on saving for a good down payment. If you have kids quickly approaching college, that may become the focus of your financial lives for the foreseeable future. If you are an empty nester and face retirement in the near future, planning and preparing for retirement must become nearly an all-consuming priority.
Don’t fixate on re-establishing your credit or on replacing lifestyle assets lost in the bankruptcy. Don’t seek a way to borrow money to buy a new car; keep driving the one you’ve got. Vow never to buy a car that will require you to take out a loan again. Buying a new car does a lot more for the manufacturer and the dealer than it does for you. An old car with a Triple A membership will get you around just as reliably.
As you seek to demonstrate to friends and family — and to yourself — that “you’re back” you will be tempted to spend the money you have. Resist the temptation to live higher than you have been. Be frugal and plow your money into your new priorities — saving for a down payment, paying for college or funding your retirement savings. Even if you are younger than 40, you’ve lost some time that you should have been saving and building equity in a home.
If bankruptcy is forcing you to create a lifestyle that is notably more budget constrained than you had before, take time to find some new perspective by volunteering in a homeless shelter or otherwise engaging with people in your community who are much less fortunate.
By approaching your recovery from bankruptcy with these ideas in mind, you can reestablish your family’s financial footing and be prepared for a more prosperous future.