Life after bankruptcy: How to repair your credit score, finances, and emotional wellbeing
There’s life after bankruptcy. Having your debts cleared by bankruptcy can be a chance for a fresh start. But picking yourself up afterwards can be way more difficult than most people expect. Bankruptcy isn’t just a piece of paper. By the time you’ve reached that point, your financial and emotional future can seem like a long dark tunnel with no end.
Coming back from bankruptcy
When entrepreneur Michael Williams* reached the point of bankruptcy, debt collectors accompanied by gang members were knocking on his door demanding payment. He was stressed beyond belief. Williams had seen a thriving business go under in a few short years thanks to changing market conditions.
Only when he took control of the situation and declared bankruptcy did Williams’ life start to turn around.
Repair your finances and emotional wellbeing
His story shows there is life after bankruptcy. But you need to take active steps to overcome the emotional, the physical and the financial aspects of your bankruptcy, says Williams.
Emotional: The period leading up to a bankruptcy is incredibly stressful and it’s necessary to physically remove yourself from the situation and take a breather. “Everyone has been hounding you,” he says. “Get yourself away to give yourself sufficient space to see the world again.” Although money is tight, a break will pay off in the long run. In Williams’ case stress at both work and home had built up over a long period as he tried to keep the business afloat. At some point it’s going to be necessary to accept the fact that you haven’t been successful and move on, he says. Let go of the guilt and shame.
Physical: A financial disaster such as bankruptcy can have a huge impact on your physical health, says Williams. You may not want to spend money. But getting exercise and eating well were absolutely essential in his recovery. “You need to repair your whole self,” he says. Also, get out. Go down to the footy club. See mates. Socialise even if your pride is hurt.
Financial: A born entrepreneur, Williams procrastinated about what he was going to do to make a living in the aftermath of his bankruptcy. He tried consultancy. In hindsight a better solution would have been to find a job fast that paid a regular salary. “I took myself from one stressful situation to another stressful situation instead of getting a job,” he says. Whatever you do, avoid getting into debt again for non-essential purchases. It may be very difficult to get any sort of mainstream credit anyway, for a while afterwards.
Cleaning up your credit history
It’s hard to repair your credit after bankruptcy. Accept that you will have to do the best you can. Make sure you set a realistic budget so that you never miss a bill. Split your bank accounts into bills and spending and pay your utilities and other essential accounts first on the day your pay comes in.
Positive credit reporting means that you can clean up your credit record over time. Take advantage of whatever credit you can get, even if it’s only an electricity account or mobile phone account and pay each and every payment on time religiously. That positive payment history will slowly improve your credit score.
Bankruptcy lasts for three years and one day before you’re discharged. At the end of this time you’re released from most of your debts.
Your credit history will be compromised for at least five years after your bankruptcy. During that period it may be hard to get credit from a bank, because details of the bankruptcy are kept on credit reporting agences’ files. Your name will remain on the National Personal Insolvency Index permanently.
*We’ve changed his name