How to recover from a bankruptcy that you now regret
By Erica Sandberg
December 29, 2015
I was only $3,000 in debt when my family convinced me to file Chapter 7 bankruptcy, and I regret it 100 percent. My mom literally told me what I should do. She filed for bankruptcy twice (that I know of), and she is a smart lady who drives a nice car and lives in a nice house. My sister also filed for bankruptcy. Here I am 23 years old with a bankruptcy being held against me for 10 years. I am looking for a job and totally dread the credit report question. It's embarrassing. Seriously, I feel like a loser and have no good answer for would-be employers. Any thoughts on what I should do to correct this mistake of a lifetime? — Joyce
What an interesting situation. Most people pursue bankruptcy because it's their last resort. They simply do not have the means to satisfy their debts now and in the foreseeable future. Though bankruptcy offers welcome relief from intense creditor pressure, almost everyone I've ever helped through the process has tried hard to avoid it.
You, on the other hand, could have paid your debts and were influenced by others to opt for a discharge. Maybe it did make sense on some level. I understand that you're experiencing second thoughts, but if you had used an attorney, she should have quickly discovered that you didn't qualify and then dissuaded you from filing for bankruptcy. The judge that presided over the case approved it, and I don't get the sense the creditors jumped to protest. At least on paper, the bankruptcy must have appeared to be appropriate.
However, if the discharge really wasn't the best course of action (and yes, the small amount you walked away from is questionable — a young person should be able to work it off), you've got to come to terms with your decision. You let other people push you into doing something you now feel was wrong. While your mother may be intelligent, perhaps she is not terribly ethical, as bankruptcy isn't something to exploit.
There's no going back on the bankruptcy now. It's time to move forward.
You're correct that the notation will remain on your credit reports for 10 years from the filing date. The bankruptcy is having a strong negative impact on your credit rating, as are any accounts that were delinquent prior to the discharge. Credit scores, such as your FICO score, weigh recent credit actions more heavily than that older activity, so start adding positive history to your credit reports. That means obtaining a credit card and using it responsibly.
The first step to rebuilding your credit is to get a job, because you'll need an income to become eligible for any kind of credit card. If the hiring manager asks to see your credit report, he will see evidence of the bankruptcy. A hiring manager may look past the bankruptcy to what else is on the report to see those late payments and the debt you had before filing. If the job you're pursuing has anything to do with money, such as a cashier position, you might not be viewed as a suitable candidate. You could seem financially irresponsible and, therefore, a risky candidate. Set your sites on positions that you have a better chance of securing.
Bad credit reports can be explained, so be prepared to talk about the past. Highlight your attributes and be honest about your mistakes. Don't sweat it. If the employer has requested a credit check, you're already desirable for the position. Persuade the hiring manager that you are the best person for the job!
After you're working, save a few hundred dollars and apply for a secured card. The cash will act as collateral, so the issuer will has your cash to serve as your credit line — a very low risk situation for the lender.
When you're granted a card, use it once a month on something minor. Charge a sandwich or two, then pay the entire bill before the due date. This way you'll definitely keep the balance well beneath the limit and establish a perfect payment pattern. Keep this up. In a couple of years that bankruptcy will have significantly less effect on your scores than it does today. Once your credit scores have recovered (close to 700), you can ditch the secured card for a card within your score range that offers a higher credit limit.
Now say it with me, Joyce: “I will not get into credit card debt again. I will do the right thing and adhere to the highest moral code. I will be proud of my financial and legal actions because they will be considered and honorable.” Do so and you will be the wise one, no matter what you drive or where you live.
Got a question for Erica? Send her an email.