Life After Bankruptcy: Mistakes You May Make and Changes You Must Make

Depending on the type of personal bankruptcy that a consumer filed, their credit report will be affected from seven to ten years. After this time, it is up to the consumer to keep themselves on track. They have to stay focused and make smart choices in order to regain their financial independence and start their credit score anew.

Budget, Budget, Budget
There are several mistakes that a consumer could make that would jeopardize their fresh start - one of the biggest is failure to plan ahead and use a budget. One of the most substantial reasons that consumers had to file for bankruptcy protection is that their ends did not justify their means. In layman's terms, they spent more than they earned. To make the most out of a consumer's debt-free existence, they must plan ahead and budget for every penny. Consumers need to use this time to make sure that their income is sufficient enough to cover them in case of a future crisis. Consumers need to save at least two years worth of income, they need to invest in 401 k and Roth IRA savings programs, and they need to make sure that they account for every expense.

Starting to Rebuild
Why do consumers need to save so much money? Now that they are debt-free, they want to remain that way. However, to start building their credit score, they may need to take out a new credit card and/or loan to prove their credit worthiness. As many consumers well know, credit cards and loans can be dangerous if they are misused. Therefore, they need to be prudent with any credit cards or lines of credit offered to them. Expect the best, but plan for the worst. If consumers have income saved in the bank, if they or their spouse were injured or lost their jobs, they could have some breathing room to still be able to pay their bills.

Avoiding Previous Bad Habits
Another mistake that is too easily made is reverting back to crisis mode. Before a consumer bankruptcy, individuals may have made some choices that actually made their situation worse even though they had the best intentions. Consumers could have lived off of their credit cards, used one credit card to pay another, borrowed from their car title to a high-interest loan store, or taken out extremely high-interest loans from unscrupulous individuals. Usually, bankruptcies evolve from precarious situations such as job loss, divorce, serious medical problems resulting in high amounts of medical bills, and/or a death in the family. What may have started out to be a small problem turns into a catastrophe when emotions override responsibility.

Consumers must recognize the mistakes that they made in the past, forgive themselves, move on, and make certain not to repeat them. All is for naught if they receive their fresh start and then revert into the bad patterns of behavior that caused their bankruptcy. Consumers do not want to face another judge. Taking these steps can and will keep consumers on track to becoming financially stable and a lesson learned is money in the pocket.