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How to Recover From Bankruptcy?
Shiv Nanda
Aug 03 • 3 mins read

How to Recover From Bankruptcy?

3 mins read

How to Recover From Bankruptcy – An Overview

Bankruptcy as a term has various definitions, but in financial matters, refers to one simple thing: the inability to repay one’s outstanding or existing debts. When a person files for bankruptcy, he does so after conquering his fears. This is because human society has taught us that being bankrupt is shameful and ruins a person’s life. We often read news related to various companies that are declared bankrupt. Bankruptcy is not shattering, you can recover from bankruptcy with some planning. Sometimes, it even proves to be a blessing in disguise for people who cannot pay their debts. In this article, we cover the various aspects of bankruptcy and ways by which you can rise up from the bottom again.

Evaluate Your Situation

When a person declares himself bankrupt, his mind goes into a state of despair and depression. Instead of wallowing in your sorrows, you should carefully analyse your financial situation. You need to find the root cause of your bankruptcy and find ways to tackle and recover from bankruptcy. Situations like divorce, medical problems, imprisonment etc. are circumstances that are beyond one’s control. Instead, if you realise that you were overspending or not prioritising on your expenses, you should make an effort to avoid this in the future. Regardless, never think that a bankruptcy is going to change your life for the worse. Instead, think of it as a blessing, as it means that you can start afresh in life. Proof of this is the fact that investors prefer to loan their money to people who have just overcome bankruptcy, as they cannot declare themselves bankrupt for the next eight years.

Avoiding Corrupt or Exploitative Lenders

Considering the fact that people are most vulnerable during and after stressful situations in their lives, one of which is a bankruptcy and before they recover from bankruptcy, you should be alert of lenders who may pose a threat in the future. Examples of such lenders are rent-to-own lenders and loan sharks. You should avoid such lenders because they assure you easy credit, but they charge high interest at the same time. If you do reach a point where you realise that you need a loan, you should first solidify your credit by spending on a credit card, as this will improve your chances of getting approved for a loan. If you are in this predicament, then you shall also be easy prey for businesses that offer ‘credit repair’, which implies that they shall remove listings from your credit report for a stipulated fee, if you so wish. This completely inaccurate and false; no person or business can remove listings from your report unless said listings are wrong.

Creating a Budget And Paying Your Bills

After a bankruptcy, you need to take control of your financial situation and make only necessary expenditures, avoiding overspending in order to increase your savings and recover from bankruptcy. If you have never created or followed a strict budget in the past, it is time to do so now. This is because your budget will help you organise your finances, and give you a clear idea of your expenditures and your savings at the same time. Your budget acts as your financial plan and tells you what to spend and when to spend it. It also helps you manage your cash flow and helps avoid excess debt. According to Dawn Brown, a certified financial adviser working with Altfest Personal Wealth Management, New York City, “Understanding your budget means you try to live below your means and stop keeping up with the Joneses. Your budget should also have a line for saving, so you can pay yourself first.” According to various experts, including Brown, you should establish an emergency fund in order to tackle unexpected problems in the future.

Bankruptcy Laws in India

In the Indian context, declaring yourself bankrupt is not as prevalent as it is in other western countries, because of the social stigma associated with bankruptcy. This does not mean, however, that provisions to file for bankruptcy do not exist in our country. Various acts provide means to file for bankruptcy in a court of law. Many of these date back to about a century. The most well-known example of this is the Provincial Insolvency Act of 1920, which deals with the various aspects of an individual declaring himself bankrupt, and is, till date, a part of the Indian Penal Code. The Government of India is working on the recently enacted Insolvency and Bankruptcy Code, which will help individuals file for bankruptcy in an easier and more structured manner. However, the Code has been confined to corporates and start-ups only, till date. Efforts are being made by the government to incorporate a process for individuals in this Code.

In conclusion, if you ever come across a situation where you are forced to declare yourself bankrupt, never fear or worry about the future, to a certain extent. The above-mentioned tips shall help you prepare for such a situation, and help you overcome a bankruptcy if you have already come across one. Remember, always improve your credit, and establish an emergency resource of money so that you are well-prepared for financially disabling circumstances in the future.

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