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Credit After Bankruptcy And The 5-Year Commitment

credit after bankruptcyBuilding a killer credit score after bankruptcy can take some time.  This is, after all, not a sprint – it’s a marathon.

Lots of my clients report that they can get new credit soon after the case is completed.  As I look at my clients’ credit scores I see that they’re getting new credit after bankruptcy, but they could be doing better.  Better rates, better lenders, better terms.  But they’re impatient.  Maybe you are, too.

Patience is something we’re taught as young kids, but we often forget it as we age.  We’ve been molded to want it all – right now. We race to the finish line even if there’s no race.

So, too, with credit after bankruptcy.  Here’s what I mean.

Good Results Fast

Steve Pavlina writes about 5-Year Commitments, noting that, “people commonly overestimate how far they can get in a year, but grossly underestimate how far they can get in 5 years.”  He recommends that we make a 5-year commitment to a particular path to maximize the impact we make.

After bankruptcy, your credit is going to take a bit of a hit for awhile.  Coming out of court, you’re not likely to be approved for any massive amount of new debt.  Nor should you be.

It’s as if you’ve just come out of heart surgery and want to run a marathon.  You can do it, just not right now.  You’ll get stronger over time.  Our heart patient may not run that marathon this year, but she stands a good chance of being able to take a brisk walk around the neighborhood to enjoy the fresh air.

Take some time to recover and get used to your new financial reality.  Watch your budget, consume the proper amounts of money each month, and learn how to save for a rainy day.  Learn to use money again.

Over time, your credit after bankruptcy will improve.  Most of my clients have a pretty good credit score 18 months after bankruptcy.  A friend of mine went through a Chapter 7 bankruptcy and qualified for an awesome automobile loan about a year later.

But why stop there?  Why not look for truly awesome credit?

Great Results Slowly

Your goal is probably not really good credit after bankruptcy – it’s financial stability.  You want money in the bank, a little security for the inevitable economic downturn, and a little peace of mind for yourself and your family.

For that, you’re going to need a bit more than 18-24 months.  Not because of the bankruptcy, but because Rome wasn’t built in a day.

You’ve got to open up a savings account and begin to fund it little by little.  You want to look into a retirement plan of some sort and start contributing.  You’re going to clear up any debts that weren’t discharged in your bankruptcy.

That’s all going to take some time.

After a year or even two, you may feel as if it’s hopeless.  But turn the clocks ahead five years and see how things look.

If you’ve been putting $20 a week into your bank account and earning even 3% interest, you’ve got over $5,500 at the end of that 5 year commitment.  If you’ve paid $100 per month towards your student loans, you’ve knocked off a chunk of those as well.

And by the end of five years, you’ve got some real stability.

A Marathon, Not A Sprint

Your credit after bankruptcy is built over time, not all at once.  Make the commitment to checking your credit reports every six months, getting any errors resolves quickly, and saving your money to build your long-term financial stability.

Treat this like a marathon rather than a sprit, and the chances you end up back in a bankruptcy lawyers’ office is far slimmer.

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By |November 28th, 2012|

About the Author:

I’ve been a consumer protection lawyer since 1995, working to help people end their bill problems. I’m a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.

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