You’ve filed for bankruptcy.
It’s something you used to only read about other people doing, yet here you are. If you’re feeling ashamed and alone, don’t: According to statistics from Epiq Systems, there were over 1.3 million bankruptcy filings last year. You may also be feeling angry, relieved, depressed … and maybe a little bit tired.
But here’s something else you should feel: hopeful. Yes, there is life after bankruptcy. In fact, filing a Chapter 7 or Chapter 13 bankruptcy is actually the first, often necessary, step toward restoring one’s credit. And while the temptation might be to put all of this behind you and never look at another credit report again, taking the opposite tack will bring you more peace of mind — by actively managing your credit and finances now, you’ll be able to mitigate the impact your bankruptcy has on your future.
One powerful way to offset the effects of bankruptcy might seem counter-intuitive: Get, and use, a credit card. The goal here, of course, isn’t to rack up more debt (which can hurt your credit score), but to show you can make timely payments. In order to avoid more debt, pay off the balance each month. And avoid large balances, which can negatively affect credit scores. Most important, though: Make EVERY payment on time. If organization isn’t your forte, or you’re a proud procrastinator, pay your credit card bill when you first receive it or, better yet, sign up for an auto-pay option.
If you can’t qualify for an unsecured credit card right away, a secured card may be your next best option. These cards, which require a collateral deposit (typically the amount of your credit line), are an excellent tool for rebuilding credit. Bear in mind, however, they’re not all created equal: Fees can vary wildly, and some disreputable providers are more akin to subprime mortgage lenders. Look closely at all fee schedules, consider a trusted institution that you know (although not one that was included in your bankruptcy filing), and don’t balk at the higher interest rates — this card is not for carrying a balance, it’s for building good credit. Finally, be sure the card issuer reports your payments to the big three credit bureaus, and double check that the account isn’t flagged as being a secured card.
Ideally, after a few months of timely payments on your secured credit card, you’ll begin to get offers for unsecured cards, and you can switch to something with lower fees and interest rates.
A track record of timely payments, along with strict, careful budgeting to keep debt under control, can restore your creditworthiness way, way ahead of the typical 7-10 years it takes for a bankruptcy to be removed from your credit report. Taking charge now will only get you there sooner.