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Bankruptcy Recovery: Lessons Learned

10/22/2008

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:

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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