Yes, you can recover from bankruptcy, and it's not as hard as you think. People who file for bankruptcy protection may feel embarrassed and hopeless. But the purpose of bankruptcy is to give you relief, a second chance, a new start. Dump the bad feelings and prepare to restart your life.
Never again! Mark Scarberry of the American Bankruptcy Institute says the first step is to understand how you got into financial trouble and take steps to avoid a repeat performance. Perhaps you need to set a new budget (see a reputable credit counselor for training in budgeting and credit management), get a better job (look into getting some education or career training), or get medical insurance if an expensive illness caused your bankruptcy.
Set some goals. With your newly-cleaned slate, you should be able to cover your expenses and save some money. Bad credit can be a blessing in disguise -- the lack of easy credit means you have to learn to delay gratification. But what do you want? A new car? A home with a good credit mortgage? A vacation? Retirement? Do some planning, and put aside funds every month. You'll feel good watching your progress.
Keep an eye on your credit score. Your post-bankruptcy credit score may be littered with inaccuracies -- accounts still showing balances that were discharged. Make sure every account you cleared with your bankruptcy is reported as closed and discharged.
Get new credit -- carefully. Get a couple of credit cards, use them for a few small transactions and pay them in full each month -- do not carry a balance. Even if the interest rates are very high, it won't matter if you don't carry a balance. Avoid cards with high annual or monthly fees -- some can come to hundreds each year. After keeping your nose clean for one year, your credit score should be getting respectable. Can you get credit after bankruptcy? Yep, some lenders actually prefer to lend to you shortly after bankruptcy, because you can't file again for eight years and so you're actually a decent risk.
Hang in there. You can get an FHA mortgage two years after discharging a Chapter 7 bankruptcy, or one year after starting a Chapter 13 reorganization as long as you make your payments on time. Follow these steps to reestablish your credit, but the most important thing is to avoid bad credit -- no bounced checks, no collection accounts, no late payments. Put yourself on automatic bill paying services or bank electronically, so the lack of a silly stamp doesn't cause you to be late.
Avoid dirtbag deals. Predatory lenders often target recent bankruptcy filers, and plenty of people go along with their shoddy deals because they don't think they deserve better. Avoid payday loans and rent-to-own deals with high interest rates -- these can suck you right back down where you were before your bankruptcy. You are NOT a dirtbag -- be patient and wait for better deals.
Cut your expenses. Get a roommate. Car pool or use public transportation. Learn to love ramen and PBJ. Avoid shopping malls (retail therapy isn't really therapy), learn to cook, and save restaurant meals for special occasions.There are gazillions of ways to save, no matter how strapped you are. Once your income improves, put aside half of the increase and use the other half for some deserved treats.
Get help. My Ask Gina column is here to answer your credit problem questions. I answer every question and bring in other experts when I need to.
Feel better. Most people's credit actually gets better after filing for bankruptcy, because unmanageable debts are cleared to give them a fresh start. While the bankruptcy filing will stay on your credit report for 10 years, its importance diminishes with every passing year.
