A journey from the throes of bankruptcy to high FICOs

By Barry Paperno

Sandy is a 64 year-old retired firefighter living in the Texas Panhandle and a proud Marine Corps veteran of Vietnam. He has gone from “a complete lack of knowledge about finances” that led from his first car payment at 20 years old to bankruptcy at 42, to achieving excellent FICO scores in his 50s and 60s.  These days he shares much of what he’s learned about credit by moderating one of the leading online financial consumer forums. He has been so kind as to answer some personal questions about how he found himself headed for bankruptcy, how he eventually turned his finances around and what he’s learned from it all.  –Barry

Did you file Chapter 7 or 13? When did you file and how much debt was discharged? 
I filed a Chapter 7 in June 1993. We kept our house and two cars, so it was only credit card debt that was discharged. I believe it was around $30,000, which doesn’t sound like all that much these days, but 22 years ago it seemed like the Mt. Everest of debt. I will say this about the bankruptcy, I am neither ashamed nor proud of it. It’s part of my life’s journey, so I don’t shy away from it.

Can you briefly describe the circumstances leading up to the indebtedness that resulted in bankruptcy? Was there a major turning point? 
It might sound strange, but my bankruptcy in some ways started back in school — and I’ll explain. I’m not sure about the educational system today, but when I graduated from high school in 1969, there was no emphasis on finances or credit or debt or how to properly manage any of it. We were pretty much on our own to learn. This meant trial and error, which can be a dangerous and costly thing.

I didn’t know how to balance a checkbook or even correctly fill out a check. My parents, both children of the Depression, lived on a cash only basis until very late in their lives, so I could not look to them for guidance. My first loan was at age 20 for a new car. The only thing I knew about credit was that you borrowed money from someone and then were expected to pay the money back. That truly was the extent of my knowledge back then. And if you were a few days late on a payment? Just pay a late fee and move on.

I was married in 1979, so of course we both had to have a new car. You think that the second car payment won’t be all that bad, but there is also the mortgage. Then children come along and you don’t realize until they are born how expensive all their needs are. You want only the best for them, which means the credit cards come out to pay for piano lessons and vacations and new clothes and it goes on and on. I’m sure you’ve heard all this before, right?

The credit cards were the nail in the coffin and I have no one to blame but myself for letting things get out of control. But goodness, it seems to happen so quickly. Suddenly those late payment fees are added to monthly interest and you find yourself owing more this month than last. Then you start missing payments all together and the letters and phone calls from the creditors begin. Towards the end I was paying $300-400 a month, just in interest on my credit cards – not counting the huge principal – I’d accrued.

Do you remember when you first realized you would not be able to get out from under your debt on your own?
Probably sometime in 1992. The pressure to get ourselves out of the hole I’d dug for us was mounting and we didn’t seem to be able to do anything about it. We talked to a credit counseling service and established a debt management plan (DMP), but that turned out to be a joke. After a few months we told the service we couldn’t even pay the minimum amount the creditors had agreed to accept and were told, “Well just pay what you can”. This meant we would be in default of our agreement, so we decided to explore bankruptcy.

 Can you share how you felt about the future and your own abilities, both financial and otherwise, as your debt began to be a problem? Did you feel any differently once you filed for bankruptcy?
Again, I can only speak for myself, but of course there is doubt and a strong sense of failure knowing that such a drastic step was needed. You wonder how it ever got to that point, but it wasn’t an overnight process. It was like a snowball moving down a hill. The problems just got bigger and bigger, until it was overwhelming.

Looking back, I knew no more about credit the day I filed for bankruptcy than I did the day before, except for one thing: I knew I could never be late on any payment ever again. That first late payment was what led to everything else and, so as far as I can recall, I’ve never been late since 1993.

After filing, how long did you go before beginning to re-establish credit? What were some of your first steps and strategies you took toward getting back on your feet financially? As already mentioned, I was just as ignorant (not stupid; just lack of knowledge) after my bankruptcy as I was before. So, blindly, I went ahead and continued to apply for new credit, but with the admonition I’d made to myself to never be late again. So, in that respect I was more careful about telling myself things like, “This credit card purchase will be okay, I can handle it”.

I don’t believe I was ever denied credit because of the bankruptcy, but most certainly over the years I paid higher interest rates than someone with a more stellar profile. I bought several cars and a new house during this time. My first new credit card after bankruptcy was from Capital One, which I got in the middle of the bankruptcy in 1998. I have it to this day and it remains my oldest account. At this time I have six open credit card accounts and two mortgages. No car payments.

Are there some lessons you learned from all of this that you continue to draw on today? Is there any advice you can give to someone currently in a situation similar to yours?
I’m convinced that if this had happened 10 years later I’d likely have been able to avoid bankruptcy altogether. In 1993, the Internet was in its infancy and there was no information available that talked about credit and debt and how to manage it all. These days there are many, many sources where one can go to read and learn about finances. Some of the advice/suggestions are just awful, but there are also many excellent websites, such as (in no particular order):

  • Motley Fool
  • Yahoo Finance
  • Kiplinger’s
  • Bankrate
  • Smart Money

The light finally went on for me in 2009 when I found myFICO.com. The more I read and studied there the more confident I became in my abilities and I realized that you can play the credit game and understand the system, but as the old saying goes “knowledge is power”. You can win in this situation if you are determined and learn what works.

What would I tell someone else? Read, read, and read some more. Take it all in and decide what might work best in your own situation. Many times there are no hard and fast rules, but here are a few that will work for everyone:

  1. Always pay everything on time each and every month. Never be late. Do this and everything else will follow suit.
  2. Revolving credit can be the death knell to a good credit profile if handled improperly. Learn about “utilization” and how it can be used to repair/rebuild/maintain good credit.
  3. All of this is a journey and not a destination. It’s also a marathon and not a sprint. Time can be your best friend if you let it.
  4. There will be setbacks along the way. Be prepared for them.
  5. Don’t give up!

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