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FAQ'S

Wednesday, December 3rd, 2008

by Theodore Sliwinski, Esq.

How to Recover From Bankruptcy

1. I am a 50-year-old self-employed man with massive credit card debt. I was the owner of a successful contracting business, until my wife cheated on me. After she filed for divorce, I sank into a deep depression. Thereafter, I stopped working altogether. Eventually, I was forced to file for bankruptcy. To this day, my credit record is terrible. How can I recover from this financial catastrophe?

First of all you are not alone. The number of people filing for bankruptcy has increased up almost 50 percent in the first half of this year, according to the American Bankruptcy Institute. About 404,000 people filed for bankruptcy between January 1 and June 30. The increase is most likely tied to the recession, the mortgage market collapse, and the high unemployment rates. Nonetheless, just because bankruptcy is increasingly common in New Jersey doesn’t make it any less stressful. People who file for bankruptcy frequently tell me that they feel ashamed, overwhelmed, and hopeless. Here are some of my tips on how to recover from filing for bankruptcy.

a. Address what caused the bankruptcy. It is very important to analyze what is the root of the problem that caused you to file. Maybe you blow too much money on useless expenses. Maybe you should not blow all of your money at the bar. Maybe seeing two movies per week is too much. Can you really afford to drive your BMW? Maybe two vacations per year is a bit much. Do you need to take your dog to the dog groomer and blow $50? Do you really need to spend $30 every two weeks on your nails? Maybe you should eat at home more instead of blowing money on restaurants. Get the point! You can save a significant portion of your paycheck if you simply readjust your lifestyle. Perhaps you need to set a new budget.

Alternatively, maybe you don’t earn enough money or your job stinks. Perhaps bankruptcy can be an eye opener and force you to reexamine your life. Do you need to go back to school to get more education? Maybe you should go back to school to learn a new profession. Obviously, if you are forced to file for bankruptcy, then your life has to change sooner or later. Maybe it is time to look for new types of employment, so you don’t find yourself in the same financial straits five years from now. The main point is bankruptcy is obvious sign that your life is not working. Turn this negative into a positive and reevaluate your life. Perhaps a bankruptcy filing can be used as an incentive to force you to get a better job, or to switch to a better paying profession or field of work.

b. Identify your goals. After you file you should determine what is important to you. You should determine what is your top goal in life. Do you have a goal of becoming a homeowner or buying a new car?

c. Check your credit score. Inaccurate information on your credit report often ruins your credit score. A bad credit report can affect everything from job applications to mortgage rates. The simple act of removing incorrect information can often significantly improve your score.

d. Gradually reestablish credit. I also recommend that my clients should take out two credit cards and pay them off in full each month. Barring any other debts, your credit score should be pretty good in only a year. Some lenders prefer to lend to people who have recently filed for bankruptcy, because they are unable to file again for eight years and therefore are liable for their new debts.

e. Don’t give up. Most people think when they file for bankruptcy that they have a big L on them that stands for being a loser. Moreover, these people believe that they won’t be able to get any credit in the future. Nothing could be further from the truth! People who file for bankruptcy simply has to know which lenders to approach. This process does take some time and research. However, most of my clients have been able to rebuild their credit, and many more have been able to obtain new car loans and mortgages.

f. Avoid unfair deals. Predatory lenders often target vulnerable groups including recent bankruptcy filers. Recent filers should be leery of organizations and companies that offer payday loans and rent-to-own deals that carry high interest rates. Many filers are so eager for credit approval that they jump on contracts with high interest rates. Instead, they should wait for a better deal.

g. Seek support. Having the support of your family eases the pain of filing for bankruptcy somewhat. When you go through bankruptcy, you are like a financial loser. You don’t want to share the fact that you filed with anybody. You think you’re the only one in New Jersey to file for bankruptcy. However, once you start talking about it, you may find that friends and acquaintances have also filed.

h. Think positively. Most people’s credit improves after filing for bankruptcy, because debts are cleared to give them a fresh start. While the bankruptcy filing will stay on your credit report for 10 years, many creditors are willing to take a chance on lending to those who have been in bankruptcy. Recognize that bankruptcy is a major break and you should take advantage of it.