Recovering From Bankruptcy

Date posted: Dec. 12, 2016
bankrupt

Five tips to help you get back on your feet after bankruptcy

 

Bankruptcy is one of those bumps in life that you would rather miss than hit. But there are ways to get back on the road to financial success after experiencing it.

Earl Sands, a licensed insolvency trustee based in British Columbia, started Bankruptcy Canada in 1999 to provide bankruptcy information for Canadians. He knows going through bankruptcy can be an emotional roller-coaster.

“The most difficult thing the person has to face when struggling with a debt crisis is the decision to seek professional help,” he says. “The truth is that most people experience an emotional toll before filing for bankruptcy; after filing the overwhelming feeling is one of relief.”

Once you have worked with your licensed insolvency trustee – the legal term for someone who is basically your “bankruptcy consultant,” complete all your bankruptcy duties and make all necessary payments to your bankruptcy estate, you will be eligible for your bankruptcy discharge. Then, you can start to plan your recovery steps.

According to Bankruptcy Canada, getting discharged, or released, from bankruptcy is usually automatic, and, in most cases, people are discharged nine months after filing. A discharge means the debtor is no longer bankrupt and no longer has any obligations under the Bankruptcy and Insolvency Act.

A year after you have been discharged from bankruptcy, Sands says you should be able to qualify for most loans at excellent interest rates, provided you meet the required income tests. Sands emphasizes the fact that people can usually start getting credit within a year of being discharged – many think they have to wait six years to get credit products because their bankruptcy record stays on the credit bureau for that length of time.

Sands offers the following tips to recover from bankruptcy and rebuild your credit:

  1. Budget. There’s a reason you always hear people talking about budgets. Keeping track of your expenses and setting financial parameters for yourself gives you a clear picture of where your money is going, so you can avoid falling into debt again. Sands recommends using a spending tracker app on your smartphone to make budgeting easy.
  2. Learn from your experience. “During the bankruptcy process, the bankrupt must make monthly payments to the trustee (a minimum of $200 for each of nine months) and he must send in monthly income and expense statements to the trustee,” Sands says. “After the discharge the payments are not required. This process will instill some discipline in the bankrupt to live within his means (or $200 monthly below his means), so when he is discharged he will have a good start towards living within his means.”
  3. Check your credit report and report any errors. Sands says errors are common, so be on guard. Check through your report when you’re starting to rebuild your credit, and regularly afterward. Notify the credit bureau of any errors.
  4. Get new credit. The goal here is to improve your credit score without building up a big credit card debt. Be sure to pay on time and handle your credit responsibly. A secured credit card is a good option. Its limit is determined by how much money you have deposited with the financial institution issuing the card – in other words, you have to have the money in the bank before you can put it on the card. Use the secured credit card for small monthly purchases.
  5. Increase your credit limits after a few months. By borrowing more, you can create a track record and prove that you can handle higher credit limits. Increase the limits on your current credit card gradually and, perhaps, think about getting a second card or a loan. Remember to keep on top of all these items and pay them off on time.

These tips will help you rebuild your credit and keep you out of overwhelming debt – and bankruptcy - in future.

Author: Sarah Munn

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