When people come to my office to talk about bankruptcy, their main question is, generally, how to go about restoring their credit.

       That is a sensible question because filing for bankruptcy is actually the first step on the road back to a sound credit rating.  The damage to anyone’s credit standing was actually done before the person first walked through my office to talk about bankruptcy.

       What is bankruptcy?  There are actually several different types of bankruptcies.  However, in the most common type of bankruptcy, chapter 7, you file a petition with a special court, showing that you cannot pay your debts, relieving you of all concern with those old discharged bills.  You are ready to make a new start in life.

       Once you receive you discharge from debt, which takes approximately six months from the date of filing, you are free to keep all the money you may now get – even if you happen to win millions of dollars in the state lottery.  Very few people ever win in the lottery, but everyone who is discharged of his debts has gained something very precious—a chance for a fresh financial start.

       The fact that you filed bankruptcy stays on your credit report for ten years, however you do not have to wait ten years to start reestablishing good credit.  You can start earning and saving money immediately.

       And that’s the key to regaining a sound credit rating.

       I recommend that once you have been discharged of your debts, you start saving from your income and deposit the money in a savings account.  When you have saved several hundred dollars, either take out a passbook loan or get a secured credit card.  We’ll get to the secured credit card in a moment. But, first, let’s talk about the loan.

       Now, why would anyone want to put money into a savings account and then borrow some of his/her own money back from the bank—and pay interests on it, besides?

       The purpose is to reestablish credit.

       By borrowing money and paying it back on time, you are showing the bank that you are financially responsible.  After you have repaid the loan, take out another, perhaps for a little more—say, a thousand dollars.  After you have repaid the second loan, go back to the bank and say, “Look, I have borrowed money twice and have repaid both loans on time.  Now I want an unsecured loan of a few hundred dollars.”

       If the bank agrees, pay back that loan exactly on time and, later, go back for a larger loan.  However if the bank refuses your request, say “Thank You.  I will take my money out of your bank and go elsewhere.”

       Then go to another bank and start the process all over again.  If the next bank proves unwilling to work with you, don’t give up.  Try still another one.  Keep looking for a bank that will cooperate with you.

       Now let’s turn to what is called a “secured credit card.”  Here is how it works:  You open a savings account at a bank that offers such a card.  The bank issues a Visa or a MasterCard that is usable up to the balance in your account.  Though this card looks like any other, the bank is actually taking no risk because it knows that, if you do not pay your bill the bank can easily take the money from your account.

       Many banks offer this type of credit card, but be careful about where you get it.  There are some illegitimate companies that charge you a fee up front and then vanish with your money without delivering the Visa or MasterCard.  So, be careful.

       Another useful way of establishing credit is by obtaining credit with a co borrower, that is a person who has good credit.  There is no reason why you could not buy a car or house with co-borrower who has good credit and sufficient income.

       Once you have taken the steps outlined above, you will be on your way to reestablishing your credit.  The point, you see, is to take small steps and to pay your bills on time.

       After a few years of an excellent payment history, your credit should be largely rehabilitated.

       Remember this: Once you have a credit card of any kind, be sure to spend no more than you can pay by the end of the month.  Don’t get back in to the credit card trap.  If you find yourself not paying off your whole balance by the end of the month, stop using the card.  Otherwise, you are likely to find yourself in the same fix as before, owing money you cannot repay.

       Please realize: Bankruptcy is not for everyone.  It does not exist to encourage people to throw their money around.  Yet, there are conditions under which bankruptcy is advisable.  Under such circumstances, a carefully considered bankruptcy can mean the beginning of a new, responsible life.

       And nothing is more gratifying to me professionally that to run into someone I have helped in a bankruptcy several years before and to learn that this person’s family is past its money problems-and happy.