"Help!  I've fallen and I can't get up!"  While better known from the Lifealert commercials, it's also something that folks who for one reason or the other have had to declare bankruptcy know a little something about.

The reasons that a person declares bankruptcy are varied and can include a nasty divorce, a job loss, illness, bad planning, poor decision making, as well as probably almost as many reasons as there are people who file for protection from their creditors.

Some of the situations were probably avoidable whereas some probably were not.  For the purposes of this discussion, it really doesn't matter.  If you've had to resort to bankruptcy protection, you're going to be in a position where you need to start over, where you need to rebuild your credit profile.

The good news is that "Time Heals All Wounds".  Once you're bankruptcy has been discharged, the clock starts on your being able to once again enter back into the "polite" company of those with "good" credit.

Here are the steps that you need to take in order to reestablish good credit:

(1) Make Sure Everything Is Included In Your Bankruptcy That Should Be Included. 

Your first step towards reestablishing yourself should actually come before your discharge.  That is that you should make sure that all of the debts that are dischargable have been included in your bankruptcy.  The more thorough your filing, the less chance that you'll have an argument later with a creditor who wasn't listed on your bankruptcy.

Another thing that you should consider is if there are some debts that you might want to reaffirm.  This might be a car loan on a car that you wish to keep or a mortgage on a home if you're allowed to keep it or maybe even a small charge card. 

If there is something along these lines, it's not a bad idea to reaffirm a debt or two because this will give you a running start towards reestablishing your credit in that you will already have a line of credit going to show that regardless of why your went bankrupt that you have the ability and the willingness to make payments on time.

(2) After 3 Months, Pull A Credit Report On Yourself.

Unfortunately what happens many times is that stuff that should have been on the bankruptcy will start to show up again.  Part of the reasons for this is that a lot of the credit reporting systems are automated and sometimes they simply screw up.  

Other times a creditor will purposefully reinsert the debt in an effort to still try to collect on it.  It's not right and it's not legal, but the chances of a creditor getting in trouble for doing it are so small that many creditors are willing to take the risk.

Sometimes the creditor will "sell" the debt to collection agency and claim ignorance that it had been discharged in a bankruptcy.  

Regardless, it's important to keep track of your credit report to make sure that what is being reported is accurate and legal for the creditors to report.  If you find something on the credit report that you think shouldn't be there, then you should dispute it with the credit bureaus.

In order to do this you will need to be able to provide a copy of your bankruptcy discharge as well as a copy of the schedule of creditors.  This is one of the reasons that you need to make sure that your filings are complete and that all of the accounts that you want discharged are included (See Step 1).  

(3) Make Sure That What Ever Caused Your Bankruptcy Is Behind You.

Seems like a common sense sort of thing, but you'll be amazed at how many people file for bankruptcy protection when whatever was the cause of them going bankrupt is still going on!

Before you can rebuild your credit you need to make sure that you're in a position to maintain any new credit that you establish or that you have reaffirmed in the bankruptcy.

(4) Start Small, Keep Detailed Records and Most Importantly, Make Your Payments On Time!

From my experience in dealing with people who have declared bankruptcy I've found that there most people fall into one of two categories.  They are; (1) those who are ready to get back into the race and (2) those that don't ever want to deal with credit again.

Both camps are off base in my opinion.

Those that want to get back into the race are in danger of not having learned their lessons in regard to the responsible use of credit.  Just because that car dealer is willing to tote the note on that banger doesn't mean that you should buy it.  

If you do need immediate credit in order to buy a car or to finance a "must have" purchase, please avoid the types of lenders who would take advantage of your situation.  If you can be patient and go through some of the following steps first, you will be better off for it in the long haul.

Sometimes this isn't an option.  The best example is buying a car.  If you can, be sure to buy a car that isn't going to end up costing your more than it's worth.  Maybe you can buy a car from a relative who will take payments.

If you can or if you are forced to buy from one of the "buy here/pay here" lots, be sure to keep detailed records of your payments.  Always pay with check or money order and keep the receipts!

You will need a paper trail to prove your payment history.  This is especially true with any rental payments because often times landlords aren't set up to report your payment history to the credit bureaus.

Whatever you do, make sure that you make your payments on time!  If there is any doubt about your ability to do this, then don't make the purchase!

(5) Reestablish Accounts

After your discharge, you will probably start getting advertisements in the mail from secure credit card companies.  Be careful and shop around, but it's not a bad idea to open a couple of these accounts up.  Don't be afraid to shop on line to see if you can get a better deal than what is being offered to you in the advertisements.

Another "trick" to reestablish accounts is to save up a relatively  small amount of money...say $500.00 or $1,000.00.  Deposit this money in a savings account and then request a loan of that amount from the depository institution and pledge the account as security in the event of your default. Make sure that your depository institution will report the "credit line" out.

Then take the $1,000.00 that they "lent" you and go to another depository institution and repeat the procedure. 

Once you've done this 3 or 4 times, make your payments on time for a period of 4 to 6 months then pay the loans off.  NOTE: Don't spend the money!

After the loans are paid off, repeat the procedure.  After you've done this a few times with these institutions you can ask them to loan you money with less than 100% security.  Different institutions have different policies and some won't lend to you even if you are offering 100% security.  If you find this to be the case, keep trying different institutions until you find one, two or three that will work with you.  Credit Unions are often good candidates for this sort of thing.

(6)  Be Responsible With Your Use Of Credit.

Once you're established these trade lines you will be off to the races in regards to rebuilding your credit.  After about a year of on time payments that are being reported out to the credit bureaus, your credit scores should start to reflect your new payment history.

That said, you still need to be responsible with your use of credit.  This entails more than simply making your payments on time.  Credit scores take more than payment history into account and you need to be aware of the fact that you shouldn't carry large balances on your charge accounts or open accounts with certain types of lenders such as pay day loan shops.  Even finance company accounts should be kept to a minimum.

You should also keep your credit inquiries to a minimum.  Only apply for credit when you truly need it.  In other words, don't apply for the bank card simply to get the free teeshirt that they are giving away at the ball park!

As mentioned above, "Time Heals All Wounds".  Even with today's tightened underwriting guild lines, if you follow my advice, you should be able to finance just about anything that you would income qualify for within a two to three year period of the filing for your bankruptcy.

If you're interest is to be able to buy a home, particularly in the St. Louis real estate market, and you have questions regarding how to implement this plan, please feel free to give me a call.  I will be happy to assist you.

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.

Bob Mitchell is president of ValueList Real Estate Services,  St. Louis' largest discount/full-service real estate and mortgage company.  If you would like to find out more about Bob, ValueList or our flat-fee listing program, please feel free to visit our web site at valuelistre.com