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In 2021, following a global pandemic, both individuals and businesses found it difficult to recoup. It’s estimated that the average person was $240,000 in debt before filing for bankruptcy.
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At the beginning of COVID, experts predicted a repeat of the 2008 mortgage collapse, where many homes would fall into foreclosure. To keep that from materializing, banks allowed homeowners to suspend their mortgage payments if they were affected by COVID.
It was a very low threshold. All you had to do was call the bank and let them know you were having trouble making your mortgage payments.
However, there were a few problems with this solution. As bankruptcy attorney Devin Sawdayi explains, “Those who suspended their mortgage payments were allotted a time limit to cure their suspended payments. This was usually around six to nine months. By December of 2020, unemployment rates were at about 6.7% with over 11 million people still without work. The repayment plan came as a surprise as most people assumed the payments they skipped or suspended would be placed on the back end of their loans.”
The other unfortunate surprise was that no bank would offer refinancing unless the borrower covered all of their missed mortgage payments, as well as remained current for five consecutive months.
This could very well lead to more foreclosures.
It’s not an easy situation, but there is light at the end of the tunnel. Regaining financial stability requires a lot of work and self-discipline, but it’s certainly not impossible.
Here are a few steps you can take to rebuild your savings and get life back on track if you’ve filed for bankruptcy.
1. Work with a Bankruptcy Attorney
Most people who find themselves in financial hardship try to figure it out alone. But this only makes it harder to get back on your feet.
Working with a bankruptcy attorney means you’ll have the professional experience of someone who can navigate all of your viable options to regain financial control again.
2. File For Chapter 13
The mortgage surprises that happened during the pandemic do indeed have a solution.
Filing for Chapter 13 will allow homeowners to pay back their mortgage payments over 60 months with no interest due on the back mortgage payments.
This allows the debtor to catch up without falling into further debt.
3. Keep Track of Your Finances
When you file for bankruptcy, you don’t wake up the next day with everything back to normal. You have to do the work. You must keep track of your finances once you declare bankruptcy.
More than likely, you’ve been living paycheck to paycheck. To regain control of your finances, you have to rebuild your savings. You can only do this if you set up a budget that includes a weekly savings plan.
4. Improve Your Credit Score
When you file for bankruptcy, you’re going to experience a huge hit to your credit score. According to FICO, a person with a 700 credit score who files for bankruptcy could expect to see it drop by 200 points.
Unfortunately, Chapter 13 may still show up on your credit score after the bankruptcy drops off.
While repaying all of the suspended mortgage payments may not be feasible in the six- to nine-month time period your mortgage company requires, the sixty months when filing Chapter 13 gives you the chance to eliminate some of your other debts.
If you feel confident keeping track of your finances, it could benefit you to apply for a new credit card. This offers a new line of credit for you to start improving your credit score.
Only do this if you feel like you’re in a position that won’t set you back any further than you already are.
5. Create Additional Income Streams
Following the pandemic, people have realized the importance of having multiple streams of income. To maintain a specific lifestyle, or even just to make ends meet, one paycheck won’t be enough to rebuild your savings.
Take a look at the options available and what experience you can utilize to make additional income.
For instance, many businesses don’t require startup funds to get going. Websites such as Fiverr offer contract work in a wide variety of services such as content writing, virtual assistance, or even voice-over work.
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Get Your Life Back on Track After Bankruptcy
There is no easy way around having to declare bankruptcy and start over, but it’s not impossible. You have to be diligent and ready to put in the work.
Working with a bankruptcy attorney is a great way to get your financial life back on track if you’re not sure where to start.
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