Bankruptcy is not the way to go if there is any chance at all of avoiding it. But if there is no other way out, it is not the end of the world for you. And yes... there is life after bankruptcy.

After the shock wears off, it's time to sit down and take a good look at where you are and formulate a plan to re-build your credit. It isn't as hard as you may think if you understand the credit system and work with it... not against it.

As for where you are now, realize your credit scores are shot with a bankruptcy on your record. You scores are probably somewhere around 450 to 490 points, which is definitely not good.

But wait, there really is life after bankruptcy! The good news is you have no debts now and the slate is clean. This is the time to start fresh and build a positive credit history from the ground up. By setting a goal for yourself, and following some credit restoration guidelines, you can be at a 720+ credit score in 12 months or less.

Here's How it's Done

The way you re-build credit is by using credit (wisely and responsibly). You will find a multitude of lenders that want to work with you (even with your horrible credit scores) to help you re-build your credit.

Keep These Points in Mind

As you work your credit re-building plan with these new lenders, keep these points in mind; lenders place the most weight on your current history. They know you had trouble in the past, but they want to see how you are handling your credit responsibilities now.

Here is a Seven Step Credit Re-building Plan to Follow:

1. You need a budget so you can make intelligent decisions about how to go about re-building your credit. Be sure to allow for monthly payments for new credit debt. You must go into debt in order to build a good history of responsible credit management.

2. Open one or two secured credit card accounts. Secured credit cards are the easiest to open and are reported to the credit bureaus. You determine the credit limit on the cards by making a deposit with the credit card company. Your deposit is your credit limit. After a 6 to 12 month solid history of use with the card, you can ask for your deposit back and the card will revert to a regular un-secured card.

3. Don't pay off the balance every month. Your goal is to build a solid payment history of timely monthly payments. It's better for your credit scores if you always leave a balance on the card, even if it's small.

4. Never close a credit card account. One measure used in determining credit scores is your debt to high balance ratio. Lenders want to see 35% or less debt to limit ratio. If you have a card with a limit of $1,000, and your balance is $850, your debt to limit ratio is 85% ($850 divided by $1,000). But if you had another card also, with a $5,000 limit and a zero balance, your total debt would be $850 and your total high limit available credit would be $6,000 ($1,000 plus $5,000). Your total debt to high limit ratio would then be 14% ($850 divided by $6,000). If you had previously closed your un-used card with the $5,000 limit, instead of a 14% ratio, you would be looking really bad with an 85% debt to limit ratio.

5. Open different kinds of credit lines. The more different types of credit you have, the more responsible you appear to credit bureaus. Someone with a credit card or two, a department store credit line, an auto loan, a bank loan, and a mortgage payment shows they are able to handle various types of credit responsibly. Don't limit yourself to just credit cards. You can get a secured bank loan as a way to build more credit, by opening a savings account with the bank, then borrowing up to that amount. The savings account is security for the loan, so the bank has no risk and is happy to make the loan.

6. Keep your debt-to-income ratios at 28/36 or less.

28/36 RATIO EXPLAINED

The 28/36 ratio is the ratio the majority of lenders work with when you apply for mortgage financing. Even though you are not applying for a mortgage loan now, that ratio makes a good guideline to follow to keep you in line budget wise, and to measure your progress. If you see yourself straying from the 28/36 ratio, you know what you have to do to get back in line.

The 28 means that your monthly housing payments (rent payment or mortgage plus taxes & insurance) should be no more than 28% of your gross monthly income. The 36 means the percentage of income that goes toward paying all your recurring debt payments, (including your housing expense). This would include credit card payments, car loans, student loans, child support payments, judgments, and/or alimony payments.

FOR EXAMPLE. If your gross monthly income (before deductions) is $3,930.00 per month

* $3,930 Monthly Income x 28% = $1,100 allowed for housing expense.
* $3,930 Monthly Income x 36% = $1,415 allowed for housing expense plus all recurring monthly debt payments. (315 allowed for new credit debt).

NOTE: The ratio used by FHA is 31/43. You could use this ratio if you prefer.

* $3,930 Monthly Income x 31% = $1,218 allowed for housing expense.
* $3,930 Monthly Income x 43% = $1,690 allowed for housing expense plus all recurring monthly debt payments. (472 allowed for new credit debt).

7. Never take on more debt than you can handle comfortably. This is why a budget is so important. The goal is to re-build your credit, not to bury you in debt in can't handle. Be careful to not get over extended. Always leave a cushion for savings and emergencies. Be wise!

Bankruptcy is not the way to go if there is any chance at all of avoiding it. But if there is no other way out, it is not the end of the world for you. And yes... there is life after bankruptcy.

Bob Perlling writes about credit repair, debt management and personal financing solutions. Special emphasis is given to the problem of derogatory credit histories in credit reports and what you can do to legally repair or erase them.

Following these tips helped my credit score go from 619 to 740. I only found out my score was low when I went to buy a car. All of the black marks against me were mistakes from the card companies, they weer sending the bills to the wrong address and had flagged my account but never followed up by phone. They ended up reversing all of the late charges and all of the black marks on my report. This also allowed me to recently refinance my home and save $300 per month. To help you follow the exact types I used please check out http://www.creditscoreto720.com