One of the things that often stops people from filing for bankruptcy protection is the fear that they'll never have credit again.
There's no reason to fear. In fact, the path back to good credit may actually start with a Chapter 7 bankruptcy -- not end with it.
Here's the thing: Every month that you are drowning in debt and missing payments, your credit keeps taking a hit. You won't build good credit as long as you are trying to break free from the cycle of late and missed payments and maxed-out balances.
Bankruptcy will knock your credit down some (unless it's already lower than most) but it also does something remarkable: It cleans the slate on your debt. You're also prevented from filing for bankruptcy again for at least another eight years. With a low debt-to-income ratio, you can likely manage a little credit. They also know that you are probably hoping to restore your credit over time, which means that you're highly motivated to pay your bills on time. All of that makes you a more attractive risk than you realize.
There an entire industry that's devoted to "second-chance credit" out there. Here's how you can make the most of the opportunity you have from bankruptcy to rebuild your credit:
- Create a budget and learn to follow it. When you file bankruptcy, the credit counseling you get can give you all the tools you need to understand how to budget your money -- even if you never have done so before.
- Get a secured credit card. To get a secured card, you find a company or bank (try your own bank or credit union first) that will accept a cash deposit and hold it as security for your card. You then get a card with a limit equal to your cash deposit. That's a no-risk way for the bank to let you prove yourself. After six months, apply for a regular card.
- Get your credit report. Start watching it and make sure you correct any errors that you see.
- Build a savings account. Even a few hundred dollars in a savings account can keep you from resorting to credit, cash loans or title loans in an emergency.
Ask yourself what you have to fear by filing. For more information, you can always discuss your specific situation with a bankruptcy attorney to get a better perspective.