Bankruptcy Recovery: Lessons Learned

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Bankruptcy helped my husband and I in a number of ways – the most important was that we were suddenly debt-free after struggling for well over two years with our debt. But as much as it helped us, it hurt us too, and there were several hard lessons we had to learn before we could ultimately get our credit and our lives back on track.

1) You know, after you declare bankruptcy it’s hard to get a loan!
We knew that going into our bankruptcy, but what surprised me was that after nearly three years of doing everything I could to rebuild my credit score, there are still some lenders who will not even consider me with a bankruptcy on my credit report.

There were a few shady types, auto lots mostly, who started soliciting us before our bankruptcy was even discharged. Aside from that though, we are pretty much financial pariahs.

And really, that’s as it should be. It makes things tough, but if I were lending money, I wouldn’t lend us money after bankruptcy either – not until our credit scores catch up to a normal rate.

So, realizing this was the case, we built up our emergency fund instead. It sure does make you self reliant when you know there is no creditor in the world who is going to be willing to help you when you need it.

This meant that we had to accept responsibility for our finances, and our futures completely. That was tough for a while, because we didn’t have very good habits prior to our bankruptcy (obviously). It got easier as we went along though. Much easier.

2) No health insurance is not an option - Our bankruptcy was almost completely caused by overdue medical bills. So, after we declared bankruptcy, the first thing we did was to secure a good amount of health, and life insurance. We made that mistake once, and we didn’t want it to happen again.

3) We learned to live within our means - When you have no credit card to just “go out and something” it becomes very easy to start living within your means. In fact it’s the ultimate discipline. It’s either spend the money you have, or don’t, but there’s no “pay it later” option. I can honestly say that is the most valuable thing that came out of our bankruptcy.

4) We realized that we didn’t make enough money to support ourselves -
We had to declare bankruptcy because at the end of the month, we had about $100 over and above our normal bills (rent, utilities, etc.) and we were trying to food and gas with that. Basically just scraping by. There was no room to pay the medical bills too. If we couldn’t pay for the gas to get to work, then we had no hope of ever paying anyone back.

So, after the bankruptcy my husband and I sat down together, and worked out a plan. He went back to school and took a new job, plus another part time job. I kept my full time job, and also took on a part time job.

I worked both jobs for two years until I felt like we were back on our feet, and then I went down to one job.

In retrospect, if we’d had any brains we might have done this before the bankruptcy, and possibly been able to avoid it. Hindsight is 20/20 I guess, and while I do wish we had thought of it then, there is no going back to change it.

I guess it made it easier to work those two jobs when I new that it was giving us a fresh start, instead of going to pay off whichever collection company our debt had been sold to that month. Make of that what you will, but it’s the truth.

5) I learned that repairing our credit wasn’t cheap! - The lower your score is, the more it will cost you to raise it back up. I know, the old adage, “Just pay your bills on time, and your score will go up” Yeah, in ten years when the bankruptcy falls off our report!

We do pay our bills on time, but it has been very expensive to actively raise our score as fast as possible. We have spent money on:

  • Credit monitoring services (to see how our actions are affecting our credit scores)
  • Secured Credit Cards ($300 each card)
  • Unsecured Credit Card ($250 in fees up front)
  • Sending certified letters to the credit bureaus
  • Paid high interest rates, and yearly fees on the few credit cards we were able to get.

Now, I’m not griping here, I swear! I am thankful for every bit of credit I have been able to get since our bankruptcy. I just didn’t expect it to be quite so expensive just to be approved for credit so that I could “pay my bills on time!”

So for those out there who would think that declaring bankruptcy gets you off scott-free, think again. Yes it erases most debts, but it is also one gigantic barrier to moving forward. And it’s a barrier that only the most persistent people will ever be able to overcome.

It’s taken my husband and I a lot of time, and a lot of education, and a lot of hard work just to build back up from where we were. No one can go back and undo decisions they made in the past, but those past decisions certainly stick with you for a long time in cases like this. The best advice I can give anyone considering bankruptcy as an option is this:

Consider carefully. You can’t undo it onces it’s done. It may wipe out the bills that you owe right now, but it will be a very long time before you are financially solvent and credit worthy if you choose to take this route. If you can pay off your bills in under 5 years, then it will probably be best to just commit and pay them off because with a bankruptcy you never really recover for at least 5-7 years, and possibly as many as ten years.

As always, I love your questions and comments! If you have a question for me (or for Mr. Credit Card who specializes in credit questions) you can leave a comment below!

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6 Responses to “Bankruptcy Recovery: Lessons Learned”

  1. Misledinamerica Says:

    The thing that I can’t understand about this story is after figuring out how to live within their means, why on Earth would they care about re-establishing credit that they no longer need?

  2. Jenna Says:

    Misledinamerica,

    Thanks for your comment! You are right when yous say that we no longer need credit – at least for the small things. We don’t use our credit cards for gas, groceries, clothes, etc. We learned how to manage our credit and our money.

    However, we are not wealthy people, not by a long shot. We do want to own a home someday. At this point we are looking into maybe purchasing a foreclosed home in a few years (without using credit.)

    I have to main goals and reasons for rebuilding my credit after the bankruptcy.

    The first is to be able to finance a house if I want to. It’s not my first choice, but I do not want to close the option off for myself. Right now we rent, and I don’t want to do that forever. Especially not with my children.

    So, I’m putting the time, money and work into raising my credit score so that I will have the option of financing a home someday.

    The second reason is because I have learned to look at credit as a tool. You can get some great deals, and some real benefits if you manage credit correctly. I’d like to be able to take advantage of those benefits one day.

    An lastly, I do feel that having available credit is a form of security. Again, it’s not my first choice. My emergency fund and my savings account are my first go-to in an emergency. But I do sleep better at night knowing we could pull the extra money from credit in the even of a true emergency.

    I don’t want to limit a single one of my family’s financial options. So, while I recognize that credit should never be the first solution, I do like to have it on my list as a financial tool.

    I was wondering, how do you feel about using credit this way? What has your experience with it been?

    I would love to know!

    Thanks,
    Jenna

  3. Polly Poorhouse Says:

    Jenna, this is a great story, especially for those who think those who declare bankruptcy are somehow working the system.

    We came close to the situation you must have faced when you made the decision to file. We are under mountains of debt, but have found a way to increase our income so it is no longer hopeless to try to dig out.

    It is inspiring to hear that it can be done.

  4. Jenna Says:

    Polly, thank you so much for your comment.

    I am really, really glad that you have found a way to dig out from under your debt. If you can avoid bankruptcy it is certainly the best option. Either way, it’s a hard road, and I am really glad you are meeting with success!

  5. lost in debt Says:

    so here is my situation (thanks in advance for reading and hopefully offering me any kind of guidance).

    i am currently contemplating filing bankruptcy. the position i am in right now is that back in 2007 i picked up everything (literally) and moved to the philippines for family reasons. at that time the company i worked for was in the process on liquidating assets and I was one of them (was given a severance). so i decided that it was a good time for me to be with my family (being that they needed me) i decided to liquidate all my assets as much as i could, (alot of people will hate me for this) but i pulled out as much cash from almost everywhere i could (credit, bank, etc) and the only thing i had left behind was my almost 2 year old car which i was just going to let them repossess (but a friend took over payments for 6 months and then it finally got taken away).

    so that is the back story (and i do apologize for this being so long) and here is the current situation.

    *almost 18k worth of credit card debt / misc. (no payments or contact with creditors since AUG 2007)
    *repo CAR balance (worth 3k; friend will split if need be)
    *3k student loan (but i am going to pay the off before filing, because it wont come off either way)

    right now i am considering relocating back to the states (home sick to be honest).

    i do have the means to pay about 10k or so of the outstanding debt, but that would cut into my relocation fund. because since being out in the philippines i have been able to save more since i have left all my debt (i know i know, that it was not the right thing to do).

    basically i have enough funds for me to be able to come back to the states and cover cost of living for about 10 months (which includes a rent, food, etc). and that is if i came back and didnt find work for 10 months. if i were to repay a large chunk of debt, i might end up in the same place again but with no fall back this time around.

    now here is my dilemma, i dont know whether to pay of the existing debt (which has all been sent to collection agencies and i am no longer dealing with the main creditor) or to file for bankruptcy.

    i cant really find much information about how my credit will look if i paid off the debt and then how hard it would be to re-establish my footing and get my credit score somewhere north of 700 and also start getting credit again. i have acclimated myself to not using credit (and in my honest opinion i like it much better, but you never know).

    also i do have people that have offered to let me lean on them in the case i do file bankruptcy and would be more than willing to co-sign their lives away so to speak (an option, but likely a last option). and also how will that help my credit score move if i had someone that has amazing credit co-sign with me on say a car loan or something smaller like the sort (dont really know how that would work).

    so after all that jibberish (again i do apologize), i can sum everything up into 3 points:

    1. Pay off debt… How will Credit Look? How will i be affected in terms of getting credit(i.e. unsecured cards / loans / etc)?

    2. file bankruptcy…. Save the savings… get say $500 secured card and start for dead scratch …. How will a Co-Signer help with move my credit score & getting Credit (i.e. car loan) and should i be the primary or should they be the primary?

    3. stay where i am and just come back for a visit and hope i dont get detained when flying back out to the philippines.

    if you made it all the way to here. i do greatly appreciate any feedback that you might have more me. and i do apologize for it being so long.

    Thanks and looking forward to your response.

    Lost in Debt.

  6. Jason Says:

    My wife and I filed in 2005 and it saved us. We went from being down over 40k in cc debt and losing control of our lives to now having a net worth of over 100k. We have bought and remodeled 3 homes, two homes we still own (one as a rental) have been able to lease and purchase vehicles. It wasn’t all fun and games and was not ever (even for one day) easy, I would (and still do from time to time)work 84 hour weeks while we reestablished and made it our purpose to recover and never look back. We started very slowly and have built up to the point that our credit scores are now over 750. We have put thousands of dollars to our 401k and have learned the magic of sweat equity through homes that we buy and remodel. We made it our purpose to be better for ourselves and our children. It may be the best thing that ever happened to us in some sort of way.

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