When you realise that you have to file for bankruptcy, a flood of emotions will no doubt be surging in your anxious mind, but chances are happiness is not one of them. But Will Thomas of Eccount Money thinks that bankruptcy can be the best thing that can happen to someone who needs to turn their life around, “filing for bankruptcy is like hitting rock bottom. There’s only one way to go and that’s up.” Thomas explains, “getting into financial trouble doesnâ€™t usually happen over night and it’s often a case of poor spending habits and choices over many years that leads to bankruptcy. That’s why when it happens, you’re actually forced to face your own failings and make real, positive changes that will lead you to become better with your money and in the end a happier person.”
Transformed and revitalised
Take the recent Kodak bankruptcy as a lesson. The BBC reported recently that the bankrupt state of the short-sighted photographic company Kodak, has been transformed into a model of success. CEO of Kodak Antonio Perez, told the media centre, that instead of being beaten by their failures, they “have been revitalized by our transformation and restructured to become a formidable competitor – leaner, with a strong capital structure, a healthy balance sheet, and the industry’s best technology.” If, like the company now famous for its failure to recognise changing technologies and consumer trends, you have hit bankruptcy because of a failure to see your own mistakes and gauge the future of your finances, then why not use this opportunity to make positive changes? Instead of focusing on where you are and how horrible things might seem, focus on identifying how you got there, and what you can do to change your future.
Ending up at the bottom
If you’re bankrupt, you probably know how it happened. Chances are that while you’re not scratching your head wondering why, you can’t exactly pin-point where it all went wrong. Getting in touch with services like The Debt Advisory service is the first step. Once you get in touch they will provide you with the free help you need to assess your situation and find out where exactly you went wrong. They will often put you in touch with people who can help with a debt recovery plan and advise you on how you can start again. The essential element of finding yourself at financial rock bottom is identifying the decisions and behaviours that caused you to end up in financial ruin. Whether you have a problem with gambling, have an addiction, ran a business badly or simply have misguided ideas about your lifestyle costs, with a bit of time to think about it, and by talking with friends and professionals, you will discover where you went wrong. Accepting these failures is the first step to recovery and to improving your situation.
What to do next
Thomas advises, “put one foot in front of the other and whatever you do, don’t stand still – always move forward and look ahead. If you’ve got nothing, then you’ve got nothing to lose. Start by building yourself up again. You won’t have many options so you’ll have to stick to a basic bank account or eccount, and put all your money into it. From there, you can start by slowly repaying your debts, paying your bills on time and practising responsible money management using the skills you’ve learned.” Your spending will be severely limited, as you’ll probably have a debt management plan in place. Thomas says “the key is not to see this as a punishment. See it as a chance to learn the right way to handle your finances and learn the ability to prioritise.”
WD Adkins from Happynews.com suggest that during this period of re-building your wealth and reputation, you should “monitor your credit record” warning that “errors on these reports can be costly and lower your credit score”. And while it might seem impossible to save when you’re so limited to begin with, Liz Weston from MSNMoney.com said that bankrupts should try and have upwards of Â£300 in the bank for an emergency fund. Often it’s the unforeseen expenses that can be the undoing of a person on the edge of financial ruin, and having this buffer money “will start you on the road out of paycheck-to-paycheck living.”
What the future holds
You will have the blight of bankruptcy on your credit history for up to ten years, but according to Happynews.com you can “realistically hope to have a good credit rating within one to two years.” With a credit rating on the mend, you will then be able to do things like apply for a secured credit card and maybe even a small loan. These small steps, as long as they’re carried out with caution, will help to further boost your credit score and rebuild your reputation for paying your bills and debts on time.
MyOwnAdvisor.ca shares the three lessons that we can all learn from infamous fall of Detroit’s economy.
“leverage and lack of diversification can be disastrous. Borrowed money to invest can be a smart move, but only if you have the financial security and income to pay it back.”
“conquer debt before it conquers you. Financial independence comes with growing assets not growing liabilities.”
“cash can become king. Liquidity, having an emergency fund, is always a good thing. While cash is a long-term loser to inflation, in a short-term bind it can be a life-saver.”
Once the stigma of being bankrupt has subsided, you’ll start to gain confidence by having rebuilt yourself from nothing. Coming out of the other side of suffering makes you a stronger, more resilient, and hopefully more wise and compassionate human being. You’ll have learnt the hard way, just how much life costs and what kind of lifestyle you can really afford. You will have gained skills on budgeting, debt repayment and hopefully you’ll be a better person in every way. Now that’s something to be happy about.
Jessica Bourne is a personal finance writer based in Chester. Jessica shares her knowledge and experience of money matters through a variety of lifestyle themed articles and blog posts.