Unfortunately, I am having to file bankruptcy, even though I am an exception to the irresponsible credit rule. Typically, most people find themselves in a bind due to having charged beyond their means, lost their jobs, couldn’t keep up with their mortgage, or had mounting medical bills not covered by insurance.

While I do have thousands in mounting medical bills (thanks to Progressive not paying my uninsured motorist claim), I am mostly filing bankruptcy to simply get bill collector’s (now filing lawsuits) off my back. I need to be free of their harassments and liens in order to make progress towards making my second million. I am very close but I am scraping bottom at the moment. In fact, these past couple of years have been so filled with trials and tribulations that I feel now like I will be able to breathe again soon.

However, I’m not out of the woods yet.

I won’t go into detail in this post (because we don’t have the hours to go into just yet), but I’m mostly filing bankruptcy because of corrupt police officers. From that ordeal, I ended up having to use my SBA loan to survive and depleted my savings while I lived in another country and then sat in jail for seven months for crimes I did not commit. If that sounds familiar to any of you, that might be because of the new movie called “Felon” that came out recently. Oddly enough, that is a very close version of what I went through (somewhat less violent, though). What surprised me most is that the San Quentin prison looks identical to the “adult detention center” where I was kept. I think that seems a little harsh, when it’s supposed to be innocent until proven guilty, don’t you?

Anyway, I digress.

Another big factor in my decision to file bankruptcy was that DriveTime violated my rights by giving out personal and financial information about me to a 3rd party. This is known as an FDCPA violation and they knew that they were so guilty that they changed their “policies” and offered me money to drop my suit. I refused and made a counter-offer, which they refused. Later, they sent me another offer, this time by certified mail. I sent one final counter-offer, which I thought was a big compromise. Instead of calling or writing back, their response was that they simply charged off my car and reported on my credit that I did not pay and refused to return the vehicle.

Ah well. I suppose that is how these places choose to deal with things. As for me, it is just one more reason to roll that auto loan in with my bankruptcy and they’ll get nothing. Plus, I have not absolved them of any liability regarding my case for the FDCPA violation, so they will still have to contend with me on that eventually. Bankruptcy was always my “ace in the hole” in this fiasco, but I thought we could come to an arrangement that would be amicable and mutually beneficial. Apparently, I was wrong.

In any case, that is a glimpse into my world and my reasons for filing.

I have taken many months and put in quite a bit of effort to prepare for the bankruptcy and to make a quick recovery from it. This included having several good items on my credit closed out, so that they will not get wiped off during the bankruptcy AND discussing with my bank to keep (or re-affirm) their credit card throughout the bankruptcy. By re-affirming the credit card through the bankruptcy, I planned to have a higher line of credit and a great recent history spanning a few years.

However, despite my precautions and talks with the bank, they did end up closing the account anyway. That is really lame, since I had been planning this for over a year and did everything in my power to ensure that this would be a major point of positivity in my rebound. Now, though, I am cut off at the knees in respect to that. It turns out that this was done out of adherence to some lending regulation.

Naturally, I also have contingency plans, because I knew the potential that they would close out the card anyway. Now, I will have to solely rely on secured cards with low limits and secured loans to boost my score back up. The only problem is that the card that got canceled was primarily used for business and not personal, so now I have to spend yet more time, that I do not have, to swap out payments on the credit card to my business debit card.

Once the bankruptcy is discharged, I am told that I can open another secured card to use for the business. This will be a huge factor in helping me rebuild my credit quickly and easing the burden on how to pay my bills each month.

All in all, this bankruptcy will allow me to focus on what is important and will bring me that much closer to getting back on top. I’ve been unfairly having to struggle over the past several years, but I’ve been pushing through like always. Now, I see the light at the end of the tunnel. I just have to keep pushing onwards until I get there.

I have an opportunity (85%) likely, as of today, where I will go live overseas and provide consulting services to an Indian company and a French company. Those will be my first two clients and I will be based out of Paris and London. Those companies are also interested in investing in my company, so that could mean I will be back on top by the end of next year or hopefully by 2010 at the latest.

With secured cards and secured loans, my credit should also be back in tip-top shape by the end of next year. So, I just have to hang on for a little while longer.

The moral of the story is that bankruptcy is definitely not the end.

Though, it can be the beginning.

Once you’ve paid on time and above the minimum for 12 months, call in and ask for a higher limit. If they ask, “how much?,” then ask them to double it. Sound confident when you ask and tell them you expect to be (or are) making more money. If you had a raise since you opened the account, they may expect proof.

You can hopefully go to your local bank and get a secured credit card based on your history with them and secured by an amount you specify. Typically, banks will accept as little as $100 to open a secured line of credit. I know that -as of the time of this writing- Washington Mutual accepts $100 to start and allows you to go up to $10,000 in increments of $100. Bank of America accepts $100 to start and allows you to go up to $2,000.

The key here is to remember that whatever you want your credit limit to be is the amount you will have to hand over. You CAN NOT use that amount to pay your bills, so you will have to have that amount PLUS enough to pay the bill each month. So, some of you may have to save up a little bit first.

If you have more than the minimum, I recommend that you do not -unless you really need to- open the credit card with the full amount that you can afford. I suggest to start off slowly and then add to it over the next several months (starting after the 3rd month).

The reason for this is that you typically cannot “withdraw” any of the money securing the card -even in emergencies- unless you close the account. So, starting small and adding will give you more of an idea of whether you can really part with the money. And, more importantly, credit bureaus give more weight to “increasing credit limits” versus “high credit limits.”

What I mean by that is that if you have a $2,500 credit limit with a $500 balance, you are viewed as a “potential risk” because you could max that out at any time. However, if you start with $500 and max it out in 3 months and then add another $500, you are viewed as being”trustworthy” because someone trusted you enough to double your line of credit. Make sense? Good!

Now, the next to last point I will make about secured credit cards is that some of us are not even able to get a secured card from a bank. I was actually in this boat myself when I first started rebuilding my credit. In this case, I had to go with a very high interest rate lender who I knew would be “financially raping me” but would give me the card. The best example is the one I went with and that is the secured credit card from Premier Credit (by the way, that is not an affiliate link!).

Now, I will tell you straight up that this is a rip-off and the worst card ever, but sometimes we gotta do what we gotta do! You will be allowed to open an account with them in the amount up to $499 to start. I suggest $250 or $300. However, you will have very little available credit because right off the bat, you will get slammed with about $250 in fees and costs and that will probably be at about 21%-25% interest! You will then have to pay that down before you can truly use the card. So, budget in to pay at least TWICE the amount you actually want as your limit. The key here is that they will give just about ANYONE a credit card -no questions asked (well a few questions asked… haha). They report timely and if you never miss a payment, this will kick-start your credit.

There is a bit of good news for you once you get enough credit to get a secured card through your bank, and that is that most banks will give you back your secured deposit and make your card unsecured after 12 months of timely payments. They won’t tell you that, but I know Bank of America does it, and I believe WaMu does also. I will know in about 6 more months on my WaMu account.

The key thing to remember is to buy everything you normally buy but use your credit card whenever possible. That includes buying gas! When you do use your credit card, set aside that amount of money to pay at the end of the month. You always want to spend ONLY what you have in CASH at the moment. If you start spending money you don’t have, that’s when you can wind up worse off than you might already be.

Another key factor is to pay MORE than the minimum each month but do NOT pay off the card entirely. Keep a little balance so that they can make something off of you. That is viewed as twice as good as just making on-time payments. For instance, if you have a $300 limit and you have $250 on it with a $15 minimum, pay $240 of it and let the other $10 ride. That won’t cost you more than a few pennies but is viewed as an “earning account” in the eyes of creditors. That’s a good thing!

In the upcoming parts to this series, I will cover how to obtain loans with bad credit. Stay tuned!

Due to time constraints, I’m going to cover point 1 in this post and follow-up later on the remaining points.

Ok, first off, let me just list out a few creative ideas I have used to build my own credit:

1. Open at least one savings account and one checking account
2. Get a secured credit card (or two)
3. Get a secured loan at your local bank secured by a government savings bond
4. Get a loan for your next vehicle purchase (even if you can pay cash) for at least 12 months term. Be sure you NEVER make a late payment!

If you have bad credit or if you are listed on ChexSystems, then you’ve probably had a tough time opening a bank account or even getting a secured card. Yes, there are actually banks who will NOT give you a secured credit card -even if you pay them up-front! In fact, if you are on ChexSystems, most national banks won’t even do business with you, period.

There are several services out there that will “help you open a bank account even if you’re on ChexSystems”, but I’m going to tell you how to do it for free. Basically, you cannot open an account with a bank if they use ChexSystems and are told you are on the list when they call. So, the solution? Don’t be on their list when they call!

All you have to do is file a dispute against whatever caused you to be listed with ChexSystems in the first place –i.e. a bounced check, a non-repaid overdraft, et cetera. Once you file the dispute, ChexSystems will temporarily remove you from their system while they investigate your claim. So, you will then have approximately 30 days to open a bank account. When they call, your file will be clean. If you wrote enough of an argument (with supporting proof) of why you should not be on ChexSystems, then you might actually get taken off the list permanently. But, it’s not really a big deal, because -as of the time of this writing- you can dispute as many times as you like and each time, you’ll get another 30 day window. I wouldn’t abuse that, though. They aren’t stupid!

Here’s the contact information for ChexSystems:

CALL
ChexSystems
Consumer Relations
1-800-428-9623
(Recording only-Instructions)

WRITE
ChexSystems
Attn: Consumer Relations
7805 Hudson Road, Suite 100.
Woodbury, MN 55125

Ok! So now that we’ve covered that, let’s get back to the meat of things…

You will want to open a savings and checking account, because creditors like to see that you are “saving” your money. And, even though you may only have $20 in your savings account, it’s a start. The longer your account is open; the better. Some places can also ask for your average balance and they consider that in their decision, but it is not as crucial.

So, that’s a good start. In the next installment of this series, I will cover point 2: “Obtaining A Secured Credit Card“

I’ve been planning this out for more than a year. I am still not 100% decided on whether or not I will be able to completely repair my credit within the next year or whether I should just file bankruptcy and get this hassle off my shoulders. One reason I am considering it more strongly than ever is because of the hassle I’ve had with DriveTime.

The only real considerations are that my pending bad debts (caused by leaving the U.S. due to police corruption) are nearing the 7-year mark and will drop off but that also means that the creditors will probably step up their efforts in collecting. So, it’s a gamble to wait. I may wait that entire time only to find out that they’ve filed lawsuits and gotten a judgment against me which will be tougher to overcome in bankruptcy proceedings (as I understand it). If I go ahead and file now, then I avoid giving them the opportunity but I lose the possibility of having those drop off naturally and not having a bankruptcy on my record for 10 years.

I will be checking into this more in the upcoming weeks, so stay tuned if you are in the same boat as me! I will also divulge tactics I have used on how to pre-build your credit so that once you file, you wont’ be left completely at the mercy of creditors and ultra-high interest rates.

For those with good credit (must be in good standing), you can still try this and see how much pull you have. First, I would define “good” credit in this scenario as better than 700 score and no past due or negative marks.

You should always be working to get the lowest interest rate possible. Do a little research to find the best rate being offered and work towards that. To help you get to that point, it helps to buy as many daily items as possible on your credit. However, you must always put that amount aside so that you can pay off that amount each month.

The goal is to pay more than the minimum while still carrying a small balance. This tells creditors that you are a good credit risk and let’s them “earn” something on your balance -even if it’s a tiny amount.

However, the ultimate situation is to be able to buy everything on credit (i.e. building your credit) and not pay any interest. The key here is to get a credit card offering 0% interest for X months.. That may be easier said than done, so this may be where you have to wait. If you cannot obtain a 0% introductory rate card, you should begin practicing the previous tip and budget for what you buy each day. At the end of the month, pay that amount off -plus a few bucks extra if you can spare it.

However, if you are able to get a card with a 0% introductory rate (or have one that’s about to expire), you should call up the company and request to cancel your card. Don’t worry, you’re not actually going to -unless you want to! We’re just going to let them know we want to cancel and see what they offer to stay. In most cases, they will transfer you and ask you what they can do to keep you. That’s simple, you just say “well, I do like this card but I’ve got too much open credit. Would you be able or willing to extend the 0% intro rate?”

They may hesitate, but in the end, they should do it. If they don’t bend, and you don’t want to cancel the card. Just tell them you want to think about it a little more (but not “changed your mind”). They may send you an offer in the mail, if you’re lucky. For me, this method worked to get me 0% interest for 2 years on one card and 0% interest on another card for 1 year. In that time, I built my credit up for free and achieved a 790 by that point.

Then, I was able to get a much better card at 0% for 6 months at 9.99% APR instead of the 14.99% I had before. I then closed the other card. So, I paid no interest at the 14.99% rate and then got a great rate on a new card after it was all said and done. I had a fairly large balance on the original card, so I used a convenience check from the new card to transfer the balance. Back when I did it, companies were offering $75 maximum fee per check but I think they did away with that now.

At any rate, I hope that helps.

For a future article, I will write about how to get credit cards if you have ZERO credit or bad credit. There are a few guaranteed methods but you have to be careful. Done right, you can really get back on your feet.

Update: Here’s the first article in the series I titled,

“Building ‘Secured’ Credit – Part 1: Bank Accounts“