Financial peril can impact individuals and families for many reasons including divorce, job loss, medical debt, home repair or other emergencies. Unfortunately, mounting debt can quickly become overwhelming forcing families to begin sacrificing one payment for another. When bankruptcy becomes a reality, individuals can use it to start on a path to financial wellness.
After successfully completing the bankruptcy process, however, individuals might not know which steps to take first. While rebuilding a credit score and buying power is a long path, it’s generally best to begin with a solid budget.
Here are four tips to remember when creating your new financial plan:
- Create a chart that details your income and expenses: You can either think of it like a flowchart or a business profit-loss statement, but you should carefully examine the money coming in and the money going out. While you might have a general sense of the debt flow, it is important to commit it to paper so it can be visualized.
- Examine your spending habits: With the visualization of how your money moves into and out of the household, you can adjust spending. Limiting discretionary spending, for example, or earmarking a certain amount to go into savings every month could be a way to begin fine-tuning your new budget.
- Allocate income into necessary channels: By removing unnecessary spending, you can get a clear picture of the true debts you face. Debts like a mortgage and car payment should take priority in the allocation of income.
- Include the entire household in the budget: The post-bankruptcy budget should be a family budget with enough transparency for all members to understand their roles.
While the Bankruptcy Code was designed to give individuals a chance to get out from under overwhelming debt, there are still dangers to avoid. Credit card debt can quickly mount and lead to the same type of peril you have recently escaped. Do not hesitate to discuss your options with an experienced bankruptcy attorney.