A reader is declaring bankruptcy, but he wants to know what happens afterward.
Question: I’m in the process of declaring bankruptcy. I actually consulted Debt.com and got hooked up with a company that’s helping me.
I’m relieved, because I was so far in debt after a motorcycle accident. Actually, I was in trouble even before. I already owed $9,000 on my credit cards and was a year from paying off the bike when I ran up big medical bills and couldn’t work.
If I’ve learned anything from this awful experience, it’s to be smarter about my money. I’ve already been told my credit score is going to take a big hit, so how do I rebuild my credit? More importantly, how do I get a credit card back so I can not only rebuild my credit but also just live?
— Ivan in California
Howard Dvorkin answers…
There’s a lot to talk about here. Let’s start with this: Congratulations.
That sounds like an odd thing to say to someone declaring bankruptcy, but bankruptcy exists for a reason. It can truly help people. Of course, like any other powerful tool, it can also be used irresponsibly. I urge anyone else considering this option to read The Pros and Cons of Bankruptcy.
Based on what you’ve written, Ivan, you’re doing bankruptcy the right way, and you have the proper attitude. I’m glad you’re looking ahead, too. Chapter 7 stays on your credit report for 10 years, while Chapter 13 is slightly less at 7 years. That’s a long time.
As for credit cards, I’ve often preached you should strive to live without them, at least for a while. In my book Power Up, I wrote…
They’re not money. They don’t look like money or feel like money, and when you purchase an item with a credit card, you don’t get that nauseating feeling of spending a large amount of cash.
That being said, I realize credit card usage is so widespread and ingrained in our culture, people look at me like I’m crazy when I suggest going cold turkey. It’s as if I told them to ditch their cell phones for landlines.
Getting a credit card after bankruptcy isn’t as difficult as you might think. Then again, what you’re getting isn’t really a credit card. You have two options: “secured card” and a “sub-prime card.” Both operate on the same principle: You put up the money you charge.
In other words, if you want a $2,000 credit limit, you deposit $2,000 with the issuer of the card. If that sounds weird, think about it this way: You’re borrowing from yourself, but by making timely payments, you actually build back your credit.
You can read more here: 6 Best Credit Cards That Help You Build Credit.
Finally, Ivan, know this: Surviving bankruptcy isn’t something to be embarrassed about, and neither are secured credit cards — especially if they’re the wake-up call that sets you on the path to financial freedom. It sounds like you’ve taken your first steps.
Have a debt question?
Email your question to firstname.lastname@example.org and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.
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Article last modified on October 24, 2018 Published by Debt.com, LLC .