How to Recover from a Bankruptcy

Bankruptcy is a funny thing.  While it is true that a bankruptcy can negatively impact a person’s credit score in a very bad way, the process of bankruptcy recovery is something that starts as soon as the bankruptcy process is officially over.  In theory, a person can begin the process of improving their credit score the same day their case is finalized.  This is true because there is no single method for improving credit, only a large collection of very small methods.  It is the responsibility of the person who filed for bankruptcy to take the steps to improve their credit.  The following tips illustrate how a person can begin taking small steps to improve their credit score in a big way:

Come up with a new budget:

Now that the bankruptcy is over a person can begin to plan for their new life after bankruptcy.  At this point, depending on the type of bankruptcy that was filed, a person now knows whether or not they have any debts to pay and if so how much those debts will cost a month.  If the bankruptcy was the result of a job loss or foreclosure, the person making out a new budget must plan on living a much simpler lifestyle until their finances can even out and/or a new job can be found.

Go pre-paid:

To make sure that a person doesn’t fall fast into old habits, they should try to live as much of a pre-paid lifestyle as possible.  These days, almost any service that can be bought on subscription can be bought on a pre-paid basis.  Phones, Internet, credit cards, etc. all offer pre-paid services.  A person can even go so far as to purchase a gift card for personal use to their own favorite establishments to control spending through the day.  Many gift cards offer a reload feature that allow users to add more money to a gift card over the phone, making the re-charge process quick and convenient.  The idea of a pre-paid service is that it makes the act of defaulting on a payment impossible.  No payment defaults means no dings against a credit score. 

Slowly re-establish credit:

As soon as life evens out a person should attempt to slowly re-build their credit.  Keep in mind that lenders like lending money to recently bankrupt individuals because the law prevents a person from filing for another bankruptcy for eight years, making them liable for any new debt incurred after their first bankruptcy.  It is this little known industry secret that generates all the offers for credit lines, auto loans, and mortgages after a bankruptcy.  A person may even notice an increase in the number of solicitations for credit they get after their bankruptcy.  Re-building credit is good, but falling for the same traps is bad.  Be weary of mail-box offers and keep credit lines low for the first couple of years.   

Following these three tips after a bankruptcy will initiate the process of bankruptcy recovery, but this is by no means a complete list.  If these tips sound remotely like anything your parents ever told you about money when you were a kid, it’s because they were right.  If you just would have listened in the first place you probably wouldn’t have to be reading this, but here we are.  On the bright side, there’s no place to go from here but up.  No one can repair your credit for you.  You have to be willing to get back to basics and start from square one.  Think of this as your second chance to get things right, because it is.