From Bankruptcy to a Perfect Credit Score

Cheryl Ann Farrell

© Copyright 2021 by Cheryl Ann FarrellT

Photo by Melinda Gimpel on Unsplash
                                                   Photo by Melinda Gimpel on Unsplash

The pandemic year of 2020 brought considerable hardship to many. For me, it was the year I finally made a FICO score of 850. A perfect credit score! It didn’t happen quickly though, and it may not be the path for everyone. This is my path of financial restoration. 

Before the Bankruptcy

I made $1.5 million in revenue in 1990 with my partner as owners of an auto brokerage and used car dealership. Quite an achievement at the time. This is especially true since our lifestyles included heavy cocaine use, drinking, and far too much turmoil. Then the bubble burst; property values plummeted; legislation changed the way we could do business. At the time we collected all the sales tax and DMV fees – just like a regular car dealer. We submitted monthly sales tax payments – until that crash. About that time the partnership collapsed. I exited the business, but not with any paperwork that said so. That was 1992.

Business Tip #1 – make sure any partnership you have is NOT 50/50. Someone needs 51%. Also, when you leave a business – tell the government agencies by filing paperwork.

My partner – remember we had a lifestyle of heavy cocaine use and drinking – well… he didn’t pay the sales tax after I left. The one saving grace in the long run was that the sales tax returns were filed, but without payment.

Business tip #2: filing on time is more important than paying on time. If you can’t pay, file anyway. It isn’t illegal to owe the government money. Not filing, however, is considered tax evasion/fraud. And that is illegal. So always, always file on time.

Things went crazy -- I drained about 75% of the checking account; hid in my apartment while my partner screamed and banged on windows for part of a day. I quickly moved in with roommates. There I was with these bizzarro people, my cat, and what money I had escaped with. It was a very bleak Christmas. Much like 2020 was for so many people. Everyone had their work reduced and the cadre of flight attendants who were my roommates and normally elsewhere were homebound. One was an alcoholic and kept her cat’s litter box under the kitchen table. The other was this hunky, blonde male flight attendant who spent as much time away as he could. One bathroom. Only one’s room to hide in.

The self-employed have no safety nets with respect to unemployment. I used the money I had to get through the rest of the year. By the first of the following year in 1993, the notice came from the State Sales Tax that I owed them about $45,000 for sales tax not rendered. I didn’t think anything of it because after all, I left that business. Right?

Business tip #3: vocabulary of “severally and jointly” --- that phrase means on the one hand, both parties owe the money. On the other hand, EACH party owes the ENTIRE amount. And when you leave a business – file paperwork to completely …. Sever … from the company.,of%20the%20entire%20amount%20due

The state tax office was after both of us voraciously. I contacted several attorneys about filing for bankruptcy out of this - All of whom told me that a person cannot bankrupt out of taxes. By now I was out of money. No resources. No safety net. If I were to get a job, the state tax office was ready to send a wage garnishment.

I’ve always been a bread baker – so I scraped together some flour, sugar, etc. I made several different breads as samples. I put together about a dozen or so “baskets” with a price list and my phone number, went to a couple of high rises of offices, wandered through the halls looking for break rooms. Just sniff for coffee! I left the baskets of samples – and began baking and selling bread. I did have to bake at someone else’s house… that kitty litter under the kitchen table?? No thanks.

The whole endeavor went really well. I was making cash, paying my crazy roommate, buying food. I was making about 40 loaves a day. I took custom orders – so if you wanted whole grain, orange, clover-leaf dinner rolls for a party – I can do that! I made cinnamon rolls for so many staff meetings that for years following this effort, people would call and ask me if I still baked. Eventually, I found a bakery to use… only once though. The owner - Frank Waldman of Doughboy’s bakery on 3rd Street in Los Angeles - and I became good friends.

But let’s not forget the state tax people. By now the state tax office was demanding budgeting paperwork. Lists of expenses. I found out my partner had also closed the business entirely. So, he was in the wind with whatever money he could take, and all the state had was … me.

Remember that “severally and jointly”?... I was the “sever” part. They were looking to me for the whole amount.

My first “case manager” felt sorry for me, I think. He was sympathetic to the story of a relationship gone south along with funds, a business, and all hope. After reviewing my expenses and seemingly lack of money, he asked “how are you not homeless?” I confessed I was selling baked goods out of the back of my car – “you know – like the guys in New York who have ‘Rolex’ watches in their coats. Do you want to buy some whole wheat bread?” He chuckled a bit and signed me off as completing another visit.

Then about 6 months later, I got the second case manager. My first one apparently wasn’t aggressive enough. She certainly didn’t make that mistake. She suggested selling my car. My response, “how am I supposed to look for work without a car?” “TAKE THE BUS. Sell your clothes. Sell your belongings. Find a cheaper place to live.” I tried keeping this piranha at bay by making small payments – like $50/month. Think about how long that would take to pay off $45,000. Meanwhile I kept searching for an attorney to see if I could bankrupt out of this sales tax bill. And “piranha woman” kept after me.

After 18 months or so of this intense pressure I finally found a tax attorney willing to take a look. Turns out – you can file bankruptcy on taxes. Some taxes anyway, sales tax being one of them with certain conditions. The key --- all the returns were filed on time and were at least 3 years old. If any had been late, there would have been no options.

My attorney also gave me some interesting advice. Open a new bank account. But not just any bank account but one at a bank – a small local bank – and only a non interest-bearing checking account. No savings account. Why?

Business Tip #4: If there is no interest earned… there is no 1099-INT generated and sent to the IRS. And if the IRS doesn’t know about the account, then neither does the state.

I hid money there. By now I was working as an independent contractor for companies doing some marketing campaigns, business development selling, and … still making those cinnamon rolls. The account the State knew about showed very little income – and I survived. I had moved out of the crazy roommate hovel, had a nice bungalow in Hollywood, still had my station wagon with bread racks and the 380 SL Mercedes the state never knew about or I’m sure “piranha woman” would have insisted I sell that too.

It’s now 1995, after the 3-year wait from the last return filed. Picture that… 3 years of maintaining both a hidden and disclosed account and meeting monthly with the “piranha woman.”

The bankruptcy stopped the state from pursuing me. I do remember, however, that I was exceptionally naïve. All this time I thought the bankruptcy would just take away the $45,000 of sales tax. But no… it took absolutely everything that was credit related. Every. Single. Credit card. Gone. Dead. I got to keep my station wagon and was free from “piranha woman” at the state tax office! 

After Bankruptcy 

It was really a shock to have everything wiped out. I continued working as an independent contractor, providing marketing and sales to credit unions of all places.

The following year, I managed to get a secured credit card. I put up $500 into a savings account and got a credit card with a $250 limit. Surprisingly, at one point I received a promotion to use “access checks” to my card. I pulled out $200 and put back into my savings account and used that money to make the monthly payments.

Business Tip # 5 to build credit you need to borrow and pay. Borrow and pay. Borrow and pay. It’s important to show steady, consistent payments.

Over time the security of the $500 was released. I made payments regularly, and the credit card companies began sending some offers. I would apply sparingly. I eventually had three cards – all of which had a $500 limit. Whenever the “access checks” would come, I would cash them, put the money in savings, and then use that money to pay off the advance.

By 1997, I had stopped selling bread and had been hired to teach at a for-profit university. Life went on with working freelance, teaching at the school, working on my credit– bit by bit. I was able to travel some…always with cash. Even renting an apartment was always a chore because … hello … I have a bankruptcy and charge offs on my credit report. I would have to prove I was a reliable wage earner to move anywhere.

Y2K – Year 2000

It’s now been 10 years since I made the $1.5 million during the high point of the business. In early 2001, my mother passed away and we dealt with all the processes that go with being an executor of will. With few work prospects for my then boyfriend I suggested – why not move somewhere like … I don’t know …. Hawaii. I had a job teaching college online and as long as I have an Internet connection, I should be good.

He moved first. By year’s end we were both on Kauai. The world was in turmoil because of the 9/11 attacks and yet we were ok with the part-time jobs we both had. Early in 2002, I was a full-time administrator at the same for-profit university I’d been with for a few years. We started to look for a house to buy.

We did spot a house one day. They asked us for an offer. – Ok, remember that bankruptcy thing? The bankruptcy was in 1995 – so I’m only 7 years in on the 10-year credit listing.

Well, lo and behold, we had the beginnings of the subprime lending era that lead to the market collapse in 2008. We were part of that. No one cared about whether we could afford a mortgage, or whether we were a credit risk or not. The name of that game was “get them into a house.” I did have a full-time job with good income at the time, but seriously – I should have never qualified. But did. Bankruptcy and all.

In my mind, I’m thinking another couple of years and the bankruptcy will be off my credit report. I have a house now which is the number one source of assets for most people. I’m still working as an independent contractor, working as a full-time administrator for an online university. Things are looking good. We got married in 2005 – a full 10 years after filing bankruptcy.

Whoo whoo – 10 years means my BK should be off my credit report. I looked. The bankruptcy listing was gone! But now a lien from the state tax people was attached. The state tax people are still looking for me and still trying to capture that $45,000. That former partner in the wind?? Clearly, he isn’t paying either. I call the state tax office and explain the discharge and they ask for a fax of the paperwork. I sent it. The lien disappears. Only to reappear in 2010. When I call, they tell me that it is outstanding – and remember that “severally and jointly” phrase? … They tell me they can reattach the lien every 5 years upon review.

I scavenge for my legal filing paperwork to call the lawyer. Of course, that lawyer retired and someone else has the practice. He does some research, and it turns out some of the paperwork was never filed in the state office. They received it but didn’t process it. The new lawyer files it again. Apparently, the state relied on some clause that allowed them to seek damages every five years. Once they found the real estate in 2005 – attached. And again in 2010. At this point, I’m 20 years out from the 1990 high point and 15 years out from the bankruptcy. This time the lawyer succeeded. No lien in 2015, or in 2020… so I’m safe. I think.

That brings the story to December 2020 – A year that no one will forget. And the year I made it to a perfect FICO score of 850. From revenue of $1.5 million in 1990 and a bankruptcy in 1995 and now in 2020 within a few years of paying off the house. To get to that perfect FICO score – it took me 25 years in total, many jobs, lots of work and effort. But it can be done. And I can breathe a sigh of relief as I lean into my retirement.

Last Tip – Don’t give up. Work steady. Spend wisely. Persist.


I am nearly retired at this point, and 66 years old. A bit late to  get started in a writing career, but I have a lot to say. I'm working to get published. I have only one personal essay published, but received no compensation.   As a member of the Hawaii Writers Guild, I've entered writing contests for its proprietary publication Latitudes -- and have won a flash fiction, and poetry place.

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