Surviving Bankruptcy and Divorce

Here is a guest post from my friend, Russ Thornton.

Divorce can wreak havoc on your finances. So can bankruptcy. But when a bankruptcy and divorce happen simultaneously, the resulting fiasco can seem like an insurmountable obstacle to overcome.
First, take comfort in knowing you are not alone. Hundreds of thousands of women go through this turmoil every year. That being said, it will take some planning, hard work, and patience to get your financial house back in order. Depending on the exact terms of your divorce and whether you received protection under Chapter 7 or Chapter 13 bankruptcy, you may be starting over with a clean slate or you may still be under court supervision for your debts. For the purposes of this post, we will assume that the divorce decree is final and you have received a full discharge from the bankruptcy court.

Let go of the past.

True, you’ve just gone through an emotional and financial shock. Your first impulse may be to sit on the sofa and lament the evils of the world around you, eat tremendous amounts of chocolate, or go enjoy a little retail therapy. Or you might want to engage in all three. You must resist these temptations. Now is the time to pull yourself together. There is life after bankruptcy. There is life after divorce. But you won’t find that life if you continue to wallow in the mistakes of the past. Let it go. Forgive yourself and move on.

Create a realistic budget and stick with it!

Take a cold hard look at your current financial status. This might not be a pretty picture. That’s okay. Honesty is the most important part of this exercise. List all your sources of income and expenses. Ideally, you should have more coming in than going out. If not, make some changes. Cut out unnecessary expenses, at least until you can fully regain your financial footing. Once you have a workable budget, stick with it. It may be tough, but it will pay off in the long run.

Pay your bills on time.

One of the easiest ways to reestablish credit is to pay the bills you have on time. This will show potential creditors that you are sincere in your efforts to rebuild your credit. They will be more likely to lend to you in the future.

Apply for a new credit card.

It may sound counterintuitive especially if credit cards were part of the problem to begin with, but you need to apply for a new card. Credit cards offer you the opportunity to show you can handle credit even if you’ve had some trouble in the past. The initial limit will be very small, usually between $300 and $500. This will keep you from getting in over your head. Once you have established a good pattern of responsible use, you can have the credit line raised. Only charge what you can comfortably payoff each month. Consider purchasing one or two tanks of gas a month, then leave the card at home until that amount is paid off.

Don’t overspend.

If you have a hard time saying no to that dress on sale, try going on a cash diet. This simple principle will prevent you from overspending. Each week, you withdraw a specific amount of cash from your bank account. Leave all cards at home and only take the cash you have on hand. That’s what you can spend for the week. If you don’t have it, you can’t overspend. It’s that simple.

Russ Thornton specializes in providing financial advice to affluent women.

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