Investment might be the last thing on your mind after successfully completing bankruptcy; however, you'll want to get familiar with phrases like "rainy-day fund" and "savings account."
In most cases, filing for bankruptcy will drain most of the funds in your accounts through liquidation in Chapter 7 bankruptcy or via a payment plan through Chapter 13 bankruptcy.
Although some funds may be exempt from liquidation or seizure, most investments and savings must be rebuilt after bankruptcy.
Starting With the Simple Things
Investing After Bankruptcy and Bank Accounts
Investment after bankruptcy doesn't always mean purchasing a home, buying stocks, or investing in a start-up. Setting aside money each month into a basic savings account offers a post-bankruptcy family the opportunity to avoid the financial difficulty of an emergency.
While you might need to put monthly funds toward a required payment under a Chapter 13 payment plan, extra funds that aren't headed for bills need to head into savings. The amount deposited into a savings account doesn't need to be an extraordinary amount.
Just $25 or $50 a month to get started is all it takes. Financial website hub Bankrate suggests a savings account is an excellent way to "jump back in" to the financial world.
A Savings Account Today Reduces Future Debts
When the muffler suddenly drops into the street while you're driving down the road, your savings account will be there for you to pay the bill. This strategy is much more fiscally responsible than charging unexpected or emergency payments on a credit card.
Tip: Consider an automatic savings plan with monthly (or biweekly) deductions from your checking account. You won't have an excuse to use that $20 on a night at the movies if the funds will automatically transfer out of your checking account.
Other types of automated savings programs include:
- 401K Plans
- College funds (529 plan)
Remember that each of these options offers slow and steady savings growth. After you've built a small "rainy day" fund in your traditional savings account, it's time to start thinking about these additional methods of investing.
One of the helpful aspects of investing in something like a 401K plan is that it's an automated method of investing. Your investment company or place of employment will automatically deduct a certain portion of income to add to your 401K.
Getting Back Into Real Estate
Bankruptcy might have included the loss of your home, which means that investing in real estate after bankruptcy could feel like climbing K2 without an oxygen tank. However, the best way to invest in real estate after bankruptcy is to rely on the healing power of time.
Realtor.com suggests that you wait about two years before looking into a mortgage. As you're likely aware, your credit report will show your bankruptcy for somewhere between seven and 10 years. But you don't need to wait a decade to buy a house.
As long as you spend your first few years after bankruptcy as a financially responsible member of society, a bank will consider your mortgage application. However, remember that waiting a few years to invest in real estate means you'll have access to better interest rates than if you try to buy property too quickly after completing bankruptcy.
Bankruptcy doesn't mean that your safety-net is gone forever. As long as you dedicate your finances to conservative spending and you begin a responsible program of savings, your financial future will look brighter than ever.
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