Filing for bankruptcy can give you a clean financial slate by erasing debt, but it also leaves you with the worry of never having decent credit again.
Fortunately, this doesn’t have to be the case. While an R9 score remains on your credit report for seven years after bankruptcy, you can start rebuilding credit the day after you file.
Here’s how to get started:
- Begin with meeting your current obligations.
While filing for bankruptcy may have erased old debts, there are still new bills to consider. For example, mobile phone bills, utility payments, housing costs, and the like. There are also your bankruptcy payments to think about.
Make a plan to pay for these expenses on time and in full every month. If you cannot afford to meet these obligations, look for ways to pare back on costs or secure more income. You do not want to take on debts that you cannot meet.
- Create a budget.
A budget will help you stay on track financially and be sure that you are able to meet all financial obligations, such as the expenses we outlined above.
But you will also want to track upcoming expenses or priorities on your budget. If you have any goals you were hoping to achieve in the future that require payment, you can start planning for them and saving now.
- Build an emergency fund.
This won’t necessarily rebuild your credit, but it is a smart idea to have it in place for your own security. Researchers from the Urban Institute found that even having as little as $250 in savings for an unexpected expense can protect families from starting a new debt spiral.
- Get an RRSP.
If you start saving money towards an RRSP, a bank may be willing to match your contribution through a loan. This contribution can generate a tax refund, which you can then use to pay off the bank loan. Your credit report will then show a paid-off loan.
- Assess your loan options.
You may think that after filing for bankruptcy, no financial institution will lend to you. This is not always the case. There are lenders who work with people who have filed for bankruptcy, and even those who are undischarged bankrupts, but you need to know what to look for.
Common bankruptcy lenders include:
- Payday lenders. Stay away from these as they do not rebuild credit and can send you into a new debt spiral.
- Secured loan based on income. Some lenders will offer you a loan based on certain income criteria. For example, at Prudent we offer loans to those with R9 credit scores if they have been employed full-time for at least six months’ in a workplace of 10 people or more; have a computerized pay stub showing all deductions; and are earning $18/hr and/or $38,000 annually. We also lend to those who are self-employed.
- Secured loan based on security/assets. If you have a paid-off car that is newer than six years old or a similar value item for collateral, you may be able to use that asset to secure a loan.
- Secured credit card. This is a credit product that operates similarly to a debit card — you can only spend what is in the account — but it reports to the credit bureaus.
- Other credit rebuilding products. Lenders, like us at Prudent, offer a variety of credit rebuilding products that can help you get back on track.
In general, when considering lenders for a loan after bankruptcy, or while in undischarged bankruptcy, be sure that they:
- Report to the credit bureau.
- Have repayment terms you can live with.
- Are offering an amount that you can realistically pay back. You don’t want to end up in another cycle of debt.
When you can show on your credit report that you have a paid-off loan and that you have been making your payments on time every month, this will be a great step towards rebuilding credit.
- Get discharged from your bankruptcy as quickly as possible.
In Canada, you can be automatically discharged from your bankruptcy in nine months if you were never previously bankrupt. But to have this happen so quickly, you will need to stay on track with your monthly payments, your monthly reports to the Licensed Insolvency Trustee, and attend all of your credit counselling sessions.
The sooner that your bankruptcy is discharged, the sooner it will disappear from your credit report, so it is in your best interest to pay it off as quickly as possible.
At Prudent Financial, we can help you begin rebuilding credit as soon as you file for bankruptcy.
Get a head start today. Contact us for a free consultation. Call 1-888-852-7647 or visit www.prudentfinancial.net.