Bankruptcy isn't the end of the world-it's the beginning of a new one. Take the opportunity to start fresh with new habits that will save you money and keep you out of debt trouble in the future.

Declaring bankruptcy can leave you feeling like you've just pulled out the wrong block in a game of Jenga. There you are, sitting in front of a pile of wooden pieces and wondering how it all fell apart. The only thing left to do- in life and in the game-is to start stacking those blocks once again.

First steps


Bankruptcy doesn't automatically bar you from obtaining credit for the next seven years. You'll be able to start again as soon as you establish a consistent track record of good credit management. This should be the most important financial priority in your life. It might take a few years, but you can raise your credit score and demonstrate that you've become a responsible borrower.

First, address any spending issues by creating a realistic personal budget. Set aside amounts for your bills first, savings second, and discretionary spending last. Then, open a savings account and establish an automatic deposit program. You should also pay your rent and utility bills on time every month. One of the best ways to do this is to set up automatic payments through an online bill service. Many utility companies will also accept direct debits from your checking account.

Moving forward


Once you have your bill paying and savings deposits on autopilot, consider obtaining a secured credit card. Just about anyone can get one these days, because it's backed by money you place on deposit with the credit card company. If you don't pay your bill, the company just takes your deposit. But that won't happen to you, right? (Not after your bankruptcy ordeal.) Instead, you're going to pay for a few necessities with your secured card, and then pay off the balance in two months. And you're going to keep doing this for as long as it takes. Every month that you pay the bill on time is another month toward building a good credit history. Some companies will eventually eliminate the deposit requirement, which basically converts your secured card to one that's conventional and unsecured.

You can also ask a friend or relative to co-sign for you on a small personal loan. If you do this, be sure to incorporate the payments into your budget. It's a good idea to set up automatic payments so you'll know they'll be on time every month.

After two years or so, you can start applying for store cards or gas cards and, eventually, a universal card. Soon after, you may even be ready for a home mortgage. (That's when you'll know you've rebuilt your Jenga blocks into a solid, stable tower.) Then, maintain your tower with responsible budgeting and spending practices. Do that, and good credit will last a lifetime.

Published on July 22, 2007