Life After Bankruptcy
There are perhaps few things more frustrating than trying to rebuild yourself after financial difficulties. However, like the Phoenix rising out of the ashes, it is definitely possible to make a financial comeback and rebuild your credit.
…. A Reprieve
One thing that is undeniably positive about the U.S. legal system is the chance to rebuild and remake oneself financially even after financial collapse or planned bankruptcy. What is exceptional about the U.S. is that by the mere fact that someone declares bankruptcy they are not ruined in every aspect of their lives. People with a negative credit history have a chance to change the momentum going forward and thrive after bankruptcy or poor credit. In fact, many, many famous people have declared bankruptcy and gone from a dim financial picture to living very comfortably or at least getting themselves out of the financial doldrums that they were in.
How Do I Repair Credit?
Imaging that you’ve just walked away from your attorney’s office having successfully had your debts discharged in bankruptcy. You have a huge weight off your shoulders as you have no more credit card debt, no more medical bill debt, and even other debts have been discharged. But now, you have a new weight on your shoulders. You face the world afraid that no one will ever give you a loan, that no one will ever give you credit. Not the case.
Rebuilding Credit Step-By-Step
Step one …. Get a Secured Credit Card
After filing for bankruptcy, you will likely be in a difficult position when it comes to creditors being willing to lend you money or to lend you credit because your bankruptcy will be on file for 7 years in Chapter 13 and 10 years in Chapter 7 bankruptcy. This information is public information and will appear in a credit search history. So, exactly how do you obtain credit?
The first step is to get a secured credit card. Simply call a credit card company and explain that you would like a secured credit card, send them some amount that they are willing to extend to you as ‘credit.’ For example, if it is a $500 secured credit card you would put down $500 and the credit card company would let you use the card to pay for purchases like a regular credit card.
Why Would You Want to Do ‘Pay Yourself’?
You want to use the secured credit card to rebuild your credit because, as time goes on and you make payments on this card you prove to the credit card company that you are able to use credit properly. The longer you continue with making regular payments, at the same time and on time, the more you prove your ability to be reliable. In a sense, although you using your own money to do it, it is like flying as a new pilot with a training pilot sitting right next to you. But instead of showing someone you can fly a plane; you’re showing the credit card company your ability to stay within the lines, that is, to make a purchase and then promptly pay it off on time and every time.
Step Two… Never Miss a Payment – No Matter What
Now, even though this is your own money that you are using through this secured credit card, you must never, I repeat, never miss a payment. Pay the same time each month. By Keeping this habit, you will accomplish two very crucial things:
1. You’re showing the credit card company that you can maintain a pattern of accountability, predictability, reliability and ability to make your payments, and
2. You are showing yourself that you have the discipline to stick to a schedule.
Sticking to the schedule you decide upon (paying the same time each month) is extremely important because by doing this you will generate what I call discipline energy. When you have discipline energy, which you only get by practicing over and over, you become powerful – you teach yourself that you can achieve whatever it is that you are trying to achieve. Here, since you are trying to rebuild your credit, you want to force yourself to rebuild your credit by demonstrating to the world that you are reliable.
Another thing to consider, you may have successfully discharged multiple debts in bankruptcy and you do not want to return to the bankruptcy court, you want to obtain financial freedom. To use another metaphor, filing for bankruptcy is like going through gastric bypass surgery. When someone experiences the amount of rapid weight loss through surgery, they typically must face the fact that to be successful in the long run they must consider their eating habits going forward. Similarly, in a bankruptcy, your financial habits need to change and one way to change then is to adopt a regular pay schedule.
Step Three… Ask for a Credit Increase
After some time has passed, typically six to nine months, you will want to call the credit card company that you have the secured card with and request an unsecured credit card in a small amount. Typically, you will be allowed to get somewhere between $500 to $1500 on your first unsecured credit card. Remember, this is another critical point in time, you have just spent six or nine months proving your reliability and you will now want to keep up that pattern on this new, unsecured credit card.
Step Four…Budget and Spend
The way to manage your new unsecured credit card is to use it for only those things you can afford. When you need gas for your car, use the card. When you need food at the supermarket, use your card, etc. You figure out how much you have to spend by developing a budget of the items you will need to spend money on each week. Then, take list your income each week. If you have money left over, think of how to use that money and plan to use it that way each week, or better yet, save it. If you are lacking money, you may need a second job or you may be able to trim your expenses.
After you’ve figured out your budget based on your income and expenses, you will want to follow that budget to the letter. Spend only the amounts that you budgeted for so that you know that every month you will have enough money left to pay off your credit card in full each month.
Step Five – Increase Your Credit Limit Again
Now, after another three to six months you’ll be ready to ask the credit card company to raise your limits. You will be surprised, but it is possible to increase a credit card limit considerably within one to two years of having received your bankruptcy discharged. Think about it. Credit card companies make money by charging interest and late fees. Once they have determined that you are worth the basic risk of lending credit, they are more than happy to start to lift restrictions on the amount of credit because they know you have the money to pay and they also know that you will be tempted to overspend and end up owing them in fees.
Step Six – Never Pay a Late Fee
With your new found discipline energy you must focus that energy like a laser on never missing a payment. You do not want a late fee, nor do you want any interest to accrue on your account. By religiously sticking to your payment schedule, in time, you stand a very good chance of achieving a high credit score. Not only is a high credit score likely in your future, but you will also likely become more attractive to other lenders even with a bankruptcy in your past. While there is no guarantee that lenders will extend you credit or money after following my plan, you will dramatically increase your odds of success.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
