What Happens After Bankruptcy?
Being cleared of bankruptcy is a life-changing moment.
After struggling with debt and the bankruptcy process, you can finally begin to move forward with your life and build a new financial future.
Understanding what happens after bankruptcy and what you can do next can help you prepare for the next steps.
Find out more about what to do after bankruptcy below.
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What happens after your bankruptcy is cleared?
When you file for bankruptcy, there are a lot of conditions you need to meet as part of your bankruptcy period.
Some of these include:
- Cancelling all of your credit cards and handing them to your licensed insolvency trustee;
- Providing documents requested by your trustee such as tax returns;
- Detailing your monthly expenses and household income;
- Payments made to your estate for a fixed period;
- Mandatory attendance at two credit counselling sessions.
When your duties have all been completed, you’ll then be issued with a discharge, confirming the end of your bankruptcy period.
While you will no longer have to fulfil the duties listed above, the impact of your bankruptcy will remain for several years.
A record of your bankruptcy will stay on your credit file for several years, but it will eventually disappear.
Your finances after bankruptcy
After being issued with your bankruptcy discharge, all history of credit will be written off your file.
Aside from the bankruptcy notice, you will have a clean credit slate, as though you haven’t borrowed before.
This has some positives and negatives.
The positives will be that you won’t have debts to your name, giving your finances a fresh start.
However, as you’ll have no credit history, it can make it difficult to obtain credit with lenders.
You’ll need to build up your credit rating over time to make you a desirable candidate, which will mean paying all of your bills on time, and start with small amounts of credit that you can pay in full and on time.
Obtaining credit after bankruptcy
After being discharged from bankruptcy, you can start working on your credit history again.
Your bankruptcy will appear on your credit file, which can have an impact on whether or not lenders decide to lend to you.
The first thing you’ll need to do is obtain your report.
You can get this from credit bureaus.
This will help you to check that all of your details are accurate and get any inaccuracies corrected.
If there are any debts left outstanding on your report, you can write to the credit bureaus to get them removed.
One of the ways you can rebuild your credit is to take out a secured credit card.
A secured credit card requires a deposit to provide security to the lender, in the event that you default on any payments.
It’s a form of revolving credit that you’ll be able to access provided you make the payments each month.
The deposit doesn’t equate to the value of your credit, and will usually be an affordable sum to help you build up your credit rating again.
While it’s great to be able to access credit once again, an unhealthy relationship with credit could have led to the circumstances that caused you to file for bankruptcy.
With any new credit card that you take out, you need to make sure that you spend wisely.
While rebuilding credit history, it makes sense to spend small amounts and pay them off in full.
You can do this with things like your grocery shopping or gas – things you would be paying for anyway and are confident you can repay.
Using a new card to buy a purchase that you can’t afford without credit could be risky, and could let you down a debt spiral once more.
Other ways you could help to rebuild your credit score include taking out a loan for a Registered Retirement Savings Plan (RRSP).
This type of loan can be an effective way of building up your net worth, and puts your loan aside for future use.
Making the monthly repayments will then help you improve your rating.
Car loans and mortgages can be more difficult to obtain without a credit history, but not impossible.
Lenders will want to take a close look at your finances and see that you’ve actively tried to build up your score before deciding to approve you for a loan.
The better your score, the better the interest rates you’ll receive, making it worth your while to wait until your score improves.
While you might feel that your bankruptcy is working against you at the moment, it’s important to realize that what you’re doing is giving yourself a fresh start and the chance to start over with your finances.
A weight off your shoulders
It is a huge relief to be discharged from your bankruptcy, ending a period of debt that would have caused a lot of stress and anxiety.
You’ll hopefully be feeling positive and optimistic about your future, ready for your next steps.
Hopefully, this period will have taught you some key lessons about managing your finances.
The credit counselling sessions that are mandatory as part of your bankruptcy should have helped you develop a healthier attitude towards money.
It’s important that you remember these lessons and make sensible decisions about your finances in the future.
Getting help with bankruptcy solutions
If you’re struggling with your finances, then bankruptcy can be a solution to help you put a stop to your debts and get your life back on track.
To be able to file for bankruptcy, or a consumer proposal, you’ll need the assistance of a Licensed Insolvency Trustee.
Talk to us about your current situation, and we can advise you on the solutions that are available, and action them on your behalf.
Get your finances in order and look ahead to a brighter financial future.
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What is Bankruptcy?
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What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?