How to Recover from Bankruptcy

Three Parts:Getting Back on TrackRebuilding CreditMaintaining Good Credit

When a person finds themselves overwhelmed by their debts and unable to repay them, they may choose to file for bankruptcy. It’s a difficult decision that can affect your credit for years to come, but it doesn’t have to mean you won’t have good credit forever. Through careful effort and sound planning, you can rebound from bankruptcy and have great credit in the future.

Part 1
Getting Back on Track

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    Perform a financial self-evaluation. Ask yourself what led to you having to file for bankruptcy. While there may be a number of variables involved, you likely also formed some poor spending or borrowing habits. It’s important that you identify these issues and take responsibility for poor choices you’ve made in order to ensure you don’t repeat them.[1]
    • Make a list of two or three things you think led to you having to file for bankruptcy and commit yourself to not repeating those same mistakes.
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    Establish a monthly budget. It’s important that you go over your income and expenses and establish a sound monthly budget that you can stick to. Your budget will allow you to keep track of your bills and stay aware of how much disposable income you have each month.[2]
    • Make a list of your monthly expenses and compare it to your income to create a working budget.
    • Incorporate unforeseeable expenses into your budget to avoid getting in over your head again in the future.
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    Pay your bills on time. After filing for bankruptcy, it is important that you demonstrate your ability to make monthly payments in full and on time. Make paying your existing bills on time a priority each month to ensure nothing else contributes to lowering your credit score.[3]
    • Use your budget as a guide to help you pay your bills on time.
    • Making your payments on time will not have a dramatically positive effect on your credit score immediately, but missing them can dramatically reduce your score.
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    Monitor your credit score. If you have room in your budget, you may want to sign up for a credit monitoring service to ensure that you stay on top of things being reported to the credit bureaus. Some banks offer credit monitoring services but you can also go through websites like or[4]
    • You may have inaccurate or erroneous information reported to your credit report that you may not otherwise be aware of without monitoring your report.
    • Monitoring your credit score can help you understand when to take the next step toward improving your credit score by applying for news lines of credit.

Part 2
Rebuilding Credit

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    Start with a cell phone plan. If you are unable to apply for a new line of credit but want to begin rebuilding your credit history, you may want to begin by applying for a cell phone. Cell phone plans provide you with a means to demonstrate your ability to make monthly payments on time and in full.[5]
    • Remember that if you fail to pay your cell phone bill your carrier may report that failure to your credit report.
    • Make sure there is room for a cell phone bill in your budget before signing a contract.
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    Apply for a secured credit card. Secured credit cards work differently from traditional credit cards. You provide the bank with a security deposit for your line of credit. This can be your savings account or you may need to provide them with a specific deposit the bank will keep. The bank will then extend a line of credit to you for the amount you secured. In the event you fail to make a payment on your card, the bank will take the money from the deposit you provided.[6]
    • Secured credit cards are designed for people with bad credit that are working to improve it, so they are an excellent choice for those rebounding from bankruptcy.
    • Making these payments must be a first priority, as making late payment or missing them entirely will further reduce your credit score.
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    Dispute inaccuracies on your credit report. As you monitor your credit report, you may notice things that don’t seem right. In the event a company submits inaccurate or erroneous information to your credit report, you have the right to dispute it and have it removed from the report.[7]
    • Write a letter to the credit bureau with the inaccurate information that was reported, as well as why you believe it to be inaccurate.
    • Request to have the information corrected or completely removed if it cannot be substantiated.
    • You can find contact information for all three credit bureaus here:
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    Apply for a high interest credit card. After making reliable payments on a secured credit card for a year or two, your credit may have improved enough to apply for a high interest credit card designed for people that are repairing their credit. Remember that the interest rates on these cards is often around 20%, which means you will be paying significant interest on any purchase you make.[8]
    • Banks will often charge an annual fee for the use of their cards to help the limit financial liability in the event you default on the credit card.
    • Unlike a secured credit card, you will not be required to provide a security deposit for a high interest credit card.
    • It is imperative that you pay these credit cards on time. The interest rates and penalties associated with late or missed payment can be difficult to recover from.
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    Choose lenders wisely. People who are rebounding from bankruptcy are often vulnerable to predatory lenders like payday loans and retailers that offer “rent-to-own” options. These companies offer credit to those with bad credit scores and may be tempting, but often offer extremely high interest rates that can lead to paying exorbitant prices for products or finding yourself unable to make the required payments.[9]
    • Predatory lenders have been known to charge interest rates as high as 625%!
    • You also may want to avoid “credit repair” services that promise to have items removed from your credit report for a fee. No business can remove accurate items from your credit report.

Part 3
Maintaining Good Credit

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    Stay clear of credit limits. As you improve your credit, you may choose to apply for more credit cards that offer higher limits and fewer annual fees. Make sure you stay on top of credit card payments to avoid falling back into debt. Your credit score is affected by your current available credit, so keep your credit balances low to maintain a good credit score.[10]
    • Your credit score may lower as a result of maxing out your credit cards, as your level of available credit will be reduced.
    • Try treating your credit cards like 30-day loans and repay anything you charge within a month.
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    Stick to your budget. Your budget has gotten you this far, so make sure to stick with it once your credit improves. Use your budget to keep track of your finances and ensure you stay on top of your bills to prevent yourself from falling back into the habits that led to filing for bankruptcy.[11]
    • It can take years to repair your credit score, so stick to your budget and don’t undo your hard work by relapsing into bad habits.
    • You can always adjust your budget as things change, but don’t disregard it.
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    Develop a long credit history. It can take years for your credit to recover from bankruptcy, but it’s absolutely possible. Based on the type of bankruptcy you filed for, your bankruptcy will fall off of your credit report after seven to ten years, so if you can maintain good spending practices throughout that time, your score can become great eventually.[12]
    • Lenders look at payment history, so having years of consistent payments on accounts will show your reliability.
    • A long credit history will improve your credit score, allowing you to qualify for lower interest rates on your loans and credit cards.

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Categories: Bankruptcy