When you find yourself facing bankruptcy, you’re feeling a lot of things — fear, worry, intimidation — but the future is still bright. You can still have a normal life, and you can still look forward to retiring in your later years. Many people believe that bankruptcy will damage into their retirement funds, but this is not always true.
How Bankruptcy Can Affect Your Retirement Savings
Once you declare bankruptcy, you compromise the protection of your money.
Withdrawing cash from your retirement account to make purchases, pay debts, or transfer money to your regular bank account for other reasons will close all the safeguards that your money has. If you’re in a tight spot, resist this temptation. Keeping your money locked away in a retirement fund protects it from being taken by a bankruptcy trustee.
Negative tax and penalties will be subjected to you
If you are below the age requirement for retirement, you will have to pay an early withdrawal penalty of 10%, adding to your regular income taxes on the funds distributed to your retirement accounts.
4 Steps to Help You Recover from Bankruptcy
Bankruptcy is a busy time; rebuilding your finances, credit rating. and your well being can feel a little overwhelming. But after you have filed for bankruptcy, it is important to remember that there is life afterward. Life does not have to look like a banishment. Life can change if you commit to live differently on the second chance you have been given.
Overcome the guilt
It’s easy to feel like a failure once you have filed for bankruptcy. But when you beat up yourself in a situation that is already present, the situation will not change. The best thing to do is to resolve to make peace with the situation, and determine to move forward.
Regroup after reflecting
After the dust has settled, you might want to do a little soul searching. The answers you find will help you prepare a better financial strategy. Consider creating a support system of friends, family, or even civic organization members to help make the transition. Having a group of positive people around you can greatly help boost your confidence.
Pay your bills on time and create a realistic budget
This is the time when you have to be vigilant about your finances. Start with a budget to control your cash flow and prevent accumulating any unnecessary debt. Avoid your peer’s rate of expenditure and stick to living below your means. Do whatever it takes to pay all your bills on time. Especially remember to pay your rent on time; since these are tracked by credit bureaus, your payments will affect your credit rating.
Rebuild your credit
The first thing you should do to rebuild your credit rating is obtaining a credit card that is secure. Of course, credit cards may be exactly what landed you in this situation in the first place. But if you get a card with a low credit line, and charge your card with only small, ordinary expenses. It will be easier to repay these amounts and rebuild your credit rating.
Bankruptcy has a very negative stigma surrounding it, and so people frequently shy away — even when they need it. Even though life will not be a walk in the park, your life won’t be terrible. For instance, there is a rumor that having bankruptcy on your record will automatically disqualify you from getting a 10-year mortgage. In fact, you can still get a home loan after going through with a chapter 13 bankruptcy. And most importantly, you can count on enjoying your golden years in a secure retirement.