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 Rebuilding Your Life After Bankruptcy


            I had always had a good credit rating most of my adult life.  That was until about sixteen years ago when I found myself out of work due to a work related injury.  When worker’s compensation balked at paying my claim, my bills kept coming.  Unable to work and with no income coming in, I began borrowing from credit cards to pay for the monthly necessities, including the minimum payment on the credit cards I was borrowing from.  After nine months I had finally won my worker’s compensation suit.  But, the lump sum payment I received came no where near the amount I owed on my credit cards which were at their max.  

            Dividing up the lump sum payment, I gave each of my credit cards an equal share.  Going back to work, against my doctor’s advice, I needed to have an income again to start paying down my debt and avoid becoming homeless.  While I was able to avoid being homeless, I wasn’t able to pay down my credit card debt because the amount of interest that accrued increased faster than what I could pay.  Fed up with the constant harassing phone calls from my creditors, I had no choice but to hire a bankruptcy lawyer.  Filing Chapter 13, I decided that paying my creditors back at least a part of what I owed was better than not paying them anything at all. 

            During the three years I was in my Chapter 13, the most important lesson that I learned was that I could have a life without credit cards.  Paying for everything in cash, I learned the value of saving my money until I had enough to buy what I wanted.  But while paying cash and learning to live within my means is a good lesson to learn, it did nothing to help rebuild my ruined credit.  Another lesson I learned when I wanted to buy my first house about two years after I finished my Chapter 13.

            Before I went looking for a house I felt the need to pre-qualify for a mortgage so I didn’t waste my time and a realtor’s time finding the perfect house I could not finance.  The first thing I found was that even though I was a first time home buyer, because of the Chapter 13 and my really bad credit rating, I could not get into any of the first time home buyer programs nor could I get conventional financing from a bank.  In fact the only financing that I could get was an unconventional loan at 12 ½ %.  This when the standard interest rate was around 7 %.

            Deciding a house would be a good investment, I adjusted my house search to find a house in the price range that would work out to a monthly mortgage payment I could afford.  Making my monthly mortgage payments on time for a few years, I noticed that my credit rating was going up, although the balance on my mortgage wasn’t really going down because of the high interest rate.  With interest rates falling, I went to my credit union looking to refinance my house. 

            Talking to a loan officer at the credit union, they not only looked at my credit rating but also my payment history since my bankruptcy.  Considering my on time payments for my current mortgage and my past payment history with the credit union, which included car loans that I had paid off, they were willing to take a chance. When I refinanced my house my interest rate went from 12 ½ % to 5 ¾ % and the length of my mortgage went from thirty years to fifteen years while still lowering my monthly payment.

            Bankruptcy is a chance to start over again with a clean slate.  Rebuilding your credit rating is a long slow process. My credit rating, which took less than a year to demolish and sixteen years to rebuild, is finally over 700 and all without ever getting a credit card.

            If you are facing bankruptcy, ask yourself, how will you rebuild your credit?