Some of the most successful entrepreneurs don’t just have startup experience — they also have start-over experience.
Such is the case with these three successful entrepreneurs, all of whom have filed for personal bankruptcy. Despite ruined credit, they still managed to build thriving businesses post-bankruptcy, making remarkable financial comebacks.
Here’s what they had to say about bankruptcy, starting over and rebuilding credit.
The house flipper
By the time he was 20, Nick Ruiz of Milwaukee had bought and flipped two houses, putting the down payments on his credit card. After renting them out for a time, he sold them, making a profit of $22,000 on one and $35,000 on the other. Within a few years, after flipping several properties, he had built a net worth of more than $2 million.
How the bankruptcy happened: In the housing crisis of 2008, Ruiz lost properties and much of his income. A couple years later, he declared personal bankruptcy and lost all of his properties and personal savings, except for his house and car. For a few months, he felt overwhelmed by his losses. His wife and two daughters motivated him to keep going.
His start-over startup: Ruiz retooled his business strategy and went into real estate a second time, without borrowing from banks. He started calling all his contacts, looking for work. He began flipping houses without taking ownership of them (a practice called wholesaling), as well as renting properties and buying, rehabbing and selling properties, focusing on single-family homes. After about a year, his business was up and running again. Around 2013, he started a second venture, called Alpha Home Flipping, where he offers online courses and one-on-one coaching to would-be entrepreneurs for a fee.
How he improved his credit: Ruiz started rebuilding his credit by getting a secured credit card and paying it down every month. Within a year, his credit had improved dramatically. Even though he still has a bankruptcy on his credit report, he was able to qualify for a car loan and an unsecured credit card. When he applied for the unsecured card, he was rejected at first, but after asking for a reconsideration, he was approved.
“A lot of people would say, well, that’s my one shot,” he says. “That’s not the case.”
Rebuilding your credit after bankruptcy? Here are NerdWallet’s Best Secured Credit Cards.
The business coach
A few years out of college, Richelle Shaw began working at a telephone company in Las Vegas called Colorado River Communications. She was quickly promoted, and helped grow the company from $300,000 in revenue to $36 million. She then bought the firm from her boss. By age 30, she was making more than $200,000 per year and was the only female African-American public utility owner in the United States.
How the bankruptcy happened: After the 9/11 attacks in 2001, the travel and tourism industries that are central to the Las Vegas economy took a hit, and many small businesses — including most of Shaw’s clients — lost revenue. Several fell months behind on their telephone bills. Shaw borrowed more money to try to keep the company afloat, but it went under.
After personally guaranteeing so many of the company’s credit lines, she had almost $3 million in personal debt. Soon after losing her house to foreclosure, she opted to file for personal bankruptcy rather than corporate bankruptcy.
Her start-over startup: Four months after her bankruptcy discharge, Shaw started a new company, called FreshStart Telephone, to provide affordable phone services to people with poor credit scores. She built a loyal client base and generated more than a million dollars of revenue in the first year. After she sold the firm, the business failed, and Shaw ended up losing money on the deal. She tightened her budget and pressed on.
Shaw now works as a business coach, providing one-on-one guidance for entrepreneurs scaling small businesses into million-dollar companies. She’s written two books on her experiences, and plans to release a third soon.
“I told myself that money doesn’t define me,” she says. “That I’m still a great person, even if I’ve made mistakes.”
How she improved her credit: After the bankruptcy, Shaw started rebuilding her credit with a secured credit card. Within two years, her credit scores had climbed to about 680, and she was able to get an auto loan, locking in the lowest interest rate offered by the car dealership. She continued to build her score by paying back the auto loan and getting an unsecured credit card. After her foreclosure came off her credit report, her score improved by about 80 points; when her bankruptcy came off, it improved by about 30 more.
NerdWallet Health finds that medical bills account for the majority of personal bankruptcies.
The social media whiz
For Jason Fyk of Philadelphia, the months before his bankruptcy felt like a downward spiral. In 2011, shortly after conducting an interview for his online magazine, he saw people fighting in a street in Baltimore. He took a cellphone video — and the police arrested him. After he spent 50 days in jail, all charges were dropped. He was left with tens of thousands of dollars of debt in attorney’s fees, few job prospects and a struggling business.
How the bankruptcy happened: After Fyk was released from jail, he had racked up so much debt, he had to use his mother’s Access EBT card to purchase food for his 4-year-old son. After a few months, in December 2012, he decided to file for Chapter 7 bankruptcy.
“I drew that line in the sand and said, ‘I’m so broke it’s ridiculous, and this is as bad as it’s gonna get,’ ” says the founder of the humor website WTF Magazine (which, the homepage notes, stands for “Where’s the Fun?”).
He started building an affiliate marketing business with Facebook business pages, which were relatively new at the time. He already had 10 Facebook pages, where he shared memes and other entertaining posts, and had about 8 million “Likes.” He wanted to find a way to capitalize on it.
His start-over startup: Within a week after discharging his bankruptcy, Fyk was able to negotiate $10,000 worth of affiliate marketing contracts for his Facebook pages. At their height, he says, his pages were making $350,000 per month. Today, Fyk is a millionaire, owning about 50 Facebook pages with about 30 million Facebook likes in total.
Last year, Facebook changed its algorithm, making Fyk’s business dramatically less lucrative. Now he’s focused on developing a media-sharing app called Appularity. Though it hasn’t yet been released, its Facebook page already has almost 2.5 million likes.
How he improved his credit: Even though he could afford to pay cash for two new cars he purchased — a Jeep and a BMW — Fyk took out two car loans instead to boost his credit scores, now in the low 700s. His years of on-time auto loan payments of about $1,000 per month were reported to all three credit bureaus. He also pays off his unsecured credit card in full every month to bump up his score.
“If you give up, you’ve lost. If you haven’t given up, you just haven’t won yet,” he says.
Ask these questions before declaring personal bankruptcy.
Photos courtesy of Nick Ruiz, Richelle Shaw and Jason Fyk.
Image via iStock.