What To Do After Bankruptcy

Whenever an individual or a couple declares bankruptcy, they often feel miserable and have no idea where to begin their rehabilitation. But of course, there is light at the end of the tunnel, even if it's not apparent at the time. The smartest thing you can possibly do in your recovery from bankruptcy is to begin to build a cash reserve to the best of your ability. Hopefully, you can scrounge out $300-400 off the bat, and then add $50 per paycheck to the reserve, so your safety cushion can grow over time. Credit card companies and other lenders aren't going to be doing you any favors--your odds of getting favorable credit terms after filing bankruptcy are about as likely as the Cubs winning the World Series this year--I wouldn't bet on it. 

The smartest thing you can do is get in the habit of making your purchases with cash as you build up a slowly growing emergency fund. If you want to rebuild your credit score, the best thing you can do is use prepaid debit cards. There is no way that you should be applying for a credit card at this point in your life--after all, it is most likely that the irresponsible use of a credit card played a role in leading you to bankruptcy. Instead of focusing on getting back on the credit card game, you should try and establish footing by building cash reserves and increasing your liquidity. If you can get in the habit of having a little bit more cash on hand each month than you had the previous month, you're going to position yourself to do well in the long run. 

Eliminate Credit Card Debt put out a wortwhile piece on the topic, and the consensus disagrees from mine, but I still recommend it as a read. Be sure to check it out by clicking here: http://eliminate-credit-card-debt.us/click-here-to-help-and-is-now-out-of-debt-2-753.htm . 

Border's Shut Down Marks End of Era

I find the recent Borders announcement to shutter the remaining 399 stores to be incredibly sad. Not only does the dissolution of Borders mark the end of an era for those of us who have ever spent a few days and evenings in tucked away in the corner of a bookstore sipping a coffee, but the shareholders who bought stock in Borders over the years are now left with nothing to show for it.

And it didn't necessarily have to be that way. Unfortunately, Borders lost the faith of its creditors and vendors during the 2008-2009 recession, which exacerbated their financial difficulties. Instead of having the option to pay book agents and publishers ninety days later, these folks started demanding payment upfront because they questioned Borders' ability to pay them back. Well, this only made things worse. Borders was in no position to meet these demands--book sales were down because a lot of shoppers found ways to buy the exact same products online for only a fraction of the price, and Borders business model broke.

They had to pay high rental rates on the stores they used, and they simply weren't able to get enough customers to throw out $29.99 for a new hardcover book release. When the country is in a recession, someone is going to just go online and buy the same book for $5 instead of spending $30. The cracks in the business model had been getting bigger as online retail became increasingly entrenched, and an American recession finally drowned this pillar of the literary community.

Bankrupt Billionaires: This Could Happen To You

The laws of financial gravity affect everyone, whether you earn minimum wage or millions of dollars. If you spend more money than you make, and load yourself up on debt, then you are asking for trouble, regardless of the amount of money that you are earning. The website Smart on Money runs a great anecdotal story about Patricia Kluge, the divorced wife of media mogul John Kluge. Apparently, Mrs. Kluge took on gobs of debt to establish a vineyard right before 2008, and when the housing crisis hit, she lost everything, having to file for bankruptcy as her debt payments greatly exceeded the money that she was bringing in. This story is incredibly sad because it was so preventable, but Mrs. Kluge's story is just a larger reflection of the tragedy that faces so many Americans today. When the economy is tough, taking out loans in the hopes of paying it off when a better tomorrow comes is all too easy of a trap to fall into. To read a great profile of Mrs. Kluge's tragic story, be sure to visit the Smart on Money link here: http://www.smartonmoney.com/from-billionaire-to-broke-one-wealthy-heiress-and-her-slide-into-bankruptcy/ .

Debt Default Release Order

There is a great post at Money Beagle about debt relief orders and the type of person that would benefit from using such a service. Debt relief orders are alternatives to bankruptcy that do not cause quite the destruction to your credit that an outright bankruptcy would. Also, debt relief orders are most useful when you have an overwhelming, yet not grotesquely large, amount of debt to pay off. These products are designed for people who are in such awful financial shape that no realistic plan could ever enable them to pay off their debt fully--let's say you have $100,000 in credit card debt and you are middle-aged and earning $35,000 per year. Hopefully, you'll never find yourself in the type of situation where you have to seriously consider a debt relief order. But, as we all well know, life happens, and sometimes we have to make decisions where we have to choose the lesser of two evils. My area of expertise is definitely not debt relief orders, so if you want to read a more authoritarian source on the subject, be sure to check out this guest post at Money Beagle: http://www.moneybeagle.com/2011/06/what-exactly-is-debt-relief-order.html

The Bankruptcy of Blockbuster

CompUSA, K-Mart, Blockbuster. Once great companies that dominated their industry, only to fall victim to more nimble companies that combined technological innovation and a desire to meet the needs of consumers. When Wal-Mart started rolling out new stores in every American city with the lowest prices possible, K-Mart did little to change its business model, hoping that Wal-Mart would simply go away like an annoying mosquito, until one day Wal-Mart became so dominant that K-Mart went bankrupt. In the 1990s, Blockbuster was the captain of its industry, making obscene profits off the late fees and video rentals of its consumers. When Netflix and other video rental chains arose to give consumers an easier way to rent movies without having extended waits or obscene late fees, the customers quickly took notice and left Blockbuster in the dust. Because Blockbuster did not change their business model and instead continued doing essentially the same thing until it had to file for Chapter 11 bankruptcy. There's a lot we can learn from Blockbuster--the world is always changing, and if you don't adapt to the new circumstances faster than your peers, you will eventually be left behind. The Suns Financial Diary wrote a great article about the Fall of Blockbuster, which you can check out here: http://www.thesunsfinancialdiary.com/personal-finance/fall-blockbuster-lesson-keeping-business-model-current/ .

Americans Without Emergency Funds

There's an old economist joke about the difference between an economic recession and depression that goes like this, "A recession is when your neighbor loses his job, a depression is when you lose yours." That joke came to mind when I recently read a Smart On Money article about the small amounts of emergency funds in the accounts of some Americans. If I remember correctly, I think something like one out of every four Americans does not even have an emergency savings account with several months worth of living expenses in it. Obviously, this is very dangerous. In tough economic times, it's very unwise to have the attitude of 'That can't possibly happen to me.' If you have no emergency savings account, I would recommend allocating 5% of each paycheck to a savings account, and 10% of each paycheck to a retirement account. Diligently saving is the secret to long-term wealth and stability, and nothing will lead you to bankruptcy as quickly as a lack of liquidity that wipes you out with a stroke of bad luck. If you want to check out the Smart On Money article, click here: http://www.smartonmoney.com/do-you-have-savings-in-case-of-an-emergency-1-in-4-americans-have-zero-emergency-savings/ .