Negotiating Bankruptcy During Unemployment Periods


For many people, the past few years of recession have taken a toll on their finances. Many people's financial situations changed, where a spouse or they themselves had to change jobs or work longer hours for less pay. Baby boomers have had to delay retirement when their nest eggs lost significant value. And for many, the recession lead to job loss and made it increasingly difficult to find new work.

Unemployment benefits do not last forever, nor do they cover all the expenses that might come up while you're unemployed. For many, cutting back and budgeting while living on any savings was not enough to cover all of their expenses, making it necessary to take out loans and sink deeper into debt. Eventually, many of these people had to declare bankruptcy.

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In 2011, there were over 1.3 million non-business bankruptcy filings. Of these filing, two out of three had lost a job over the year. For many, bankruptcy was the only alternative they had to losing everything to the bank and creditors.

The Effects of Declaring Bankruptcy
Although filing for bankruptcy can help ease a debtor's financial burdens, being declared bankrupt has significant and often long-term effects on a person's credit history. Even after the remaining debt is paid off, the individual's credit score will be low. To rebuild credit, the individual will have to make purchases and pay off that debt in a timely manner.

Unfortunately, these individuals will often find that banks, creditors, and stores are unwilling to lend any credit of significant value because of the past bankruptcy filing. As such, individuals trying to rebuild credit must start small and work their way back up to higher levels of credit.

Before declaring bankruptcy, individuals are strongly recommended to meet with a bankruptcy attorney to discuss alternatives to bankruptcy. They can also get advice about spending habits and consolidation options to make it easier to pay off their debts.

Rebuilding a Good Credit Score
This is often done using secured credit cards, where an individual gives a bank a set amount of money that they can spend and must ultimately pay off. The bank in turn records these transactions and sends the information to the three credit unions. As an individual keeps a low balance on this card and pays off what they owe in a timely manner, the banks may be willing to renegotiate the amount of credit the individual may access. Ultimately, a person wants a high level of credit with a low balance, which shows that they can be trusted to repay what they owe.

Eventually, an individual can work with a bank or company to open unsecured credit cards or company cards with lines of credit. Even when their credit is better, it's important that the individual remains aware of spending habits and budgets accordingly. When they find new work, even if it is a temporary position or they are underemployed, the individual can work with financial advisors or credit counselors to figure out the best ways to deal with any remaining debt they have and to remain debt free. The road to credit recovery can be a long one, but worth the effort.


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