Q Is there life after bankruptcy? I hope the answer is yes. How do you proceed from that point? We are a couple in our 40s, two kids -- a teenager and one in elementary school -- with questions about college, retirement, buying another home and moving on. Any help appreciated.
A There is definitely life after bankruptcy. Bankruptcy is all about a fresh start.
In our early history bankruptcy was a crime. Defaulting on your debts might get you locked up in debtor prisons.
How to treat going broke ranked among the major legislative battles of the time. By the end of the 19th century the law reflected the influence of another powerful American creed: America as the land of the fresh start. Frontiersman Daniel Boone went belly up. So did Civil War photographer Mathew Brady. P.T. Barnum, the famous showman, lost half a million dollars in a giant swindle. He came out of bankruptcy 10 years later and founded the Greatest Show on Earth.
To try and fail and try again became part of the American ethos. I know it won't be easy. But getting out from under your debts will buy you the time and resources to rebuild your finances.
A couple of practical suggestions: You mentioned several worthwhile family goals, but you'll need to establish priorities. For instance, instead of saving money for college, I would focus on making sure your children do well in school and take college prep classes.
Despite high college costs, ample financial aid is available for qualified students. You may want your family to have the security of a home, but ownership is really expensive (and you would pay a high interest rate on any mortgage). You'd be far better off financially by renting.
I recommend concentrating on rebuilding "safe'' savings -- your family's financial safety net. It will take years. You won't earn much on the savings, but it is a critical buffer against another setback. To help you do that, I also would budget. This investment in time and effort can generate a lifetime of good financial habits.
You don't want to go back into debt. Period. But you do want to use this time to restore your credit. You will quickly learn that some types of loans are immediately available to you after bankruptcy, such as high-interest-rate auto loans. Steer clear of predatory loans and lenders. The bankruptcy will affect your credit score for 10 years, but the impact can diminish long before that if you demonstrate a history of responsible credit behavior. A classic way to do that is to obtain a secured credit card. You open up a special savings account with a bank or credit union and your credit limit on the card is equal to or somewhat less than the amount on deposit, say $500.
I'd recommend looking at Eric Tyson's "Personal Finance for Dummies"; my book, "The New Frugality''; and the Nolo.com book "Solve Your Money Troubles'' by Robin Leonard, J.D and Margaret Reiter. Good luck.
Chris Farrell is economics editor for "Marketplace Money." Send questions to firstname.lastname@example.org.