Everything you need to know about life after Bankruptcy

After years, or even decades, of financial stress bringing you down, a weight has been lifted. You’ve completed the Bankruptcy process and now you’re free to start on a new financial journey. But where to start?

You’ve put in a lot of hard work to get here but there is more to be done. Using what you’ve learned in this process to develop a firm foundation for financial responsibility moving forward is key to ongoing success.

Whether it’s budgeting, saving, or rebuilding your credit, setting out a roadmap for yourself will keep you accountable and give you back control over your financial future.

For many, rebuilding your credit is a key part to the post-Bankruptcy process. But before you rush to fill out credit applications, there are a few things to consider.

Are you ready for credit again?

Credit is only one of the many items in your financial toolbox. Depending on your future goals, it can be useful, but by no means is it necessary to rebuild your credit after an insolvency proceeding.

If you’re considering rebuilding your credit, you’ll want to determine if you can safely manage your credit, how the credit will help you on your financial journey, what are the potential alternatives to credit, and if you’re truly ready to apply for credit.

Let’s take a closer look at the questions you’ll want to ask yourself at this stage in the process.

• What are your current and future income expectations?
  • In the Bankruptcy process, you will have made a comprehensive budget for yourself. An honest appraisal of your income will help reveal if credit will contribute to or harm your financial wellbeing. Do you expect your income situation to change? Do you have any/enough savings? Are there multiple incomes in your household? These are all important things to consider when making the choice to get credit or not. If your budget is already tight and you don’t have much wiggle room, credit might not be the best choice right now.
• What is your age and lifestyle?
  • Depending on your age and lifestyle, trying to get a better credit rating might not be helpful. If you’re at or nearing retirement, consider how your income (pension, government benefits, savings) will be able to cover living expenses and credit card use. Alternatively, if you’re in the early family stage of life, think about unexpected and long-term expenses that come with having a family, which shouldn’t include credit card use to make ends meet. Ultimately, if you have several working years and earning potential ahead of you, rebuilding your credit might be a beneficial step for you to reach future financial goals.
• Why do you want or need credit?
  • Knowing how you plan to use your credit card, and creating a spending plan, will help determine if this is the right next step for you. If you’re hoping to purchase a vehicle or house in the future, you’ll need a decent credit score to be approved for loans of that size. Speak with a financial advisor or mortgage broker to come up with specific strategies to raise your credit profile and calculate clear savings goals and timelines to follow.

How to manage credit differently

If you’ve decided that rebuilding your credit is the best choice for you, but before going any further, there are a few milestones you’ll want to hit.

1. Design a personal spending plan: To be able to manage credit, you need to be able to manage your household expenses. A comprehensive budget or spending plan will illustrate how to consistently pay off purchases and stay on track. If you’re planning on using credit cards, pick a specific category of spending for each one and don’t vary from it. Depending on your month-to-month expenses, if there’s no money in your budget to allocate to your credit cards, don’t spend any credit. Keep your budget up to date and use it as a guiding document.
2. Set boundaries, not restrictions: Think of your budget as an opportunity to set good financial boundaries for yourself. You’re building good financial habits and a solid foundation to manage your spending. Your budget will allow you to see in real time if your habits are having a positive or negative impact on your finances and will be able to fill any holes that pop up as you go.
3. Save money: Saving is key to a healthy financial future. Having savings makes you more appealing to lenders, and it ensures you won’t be reliant on credit to get by financially. Having money saved also helps you resist using credit cards for emergencies or large purchases. Consider setting up your savings into multiple pots for different uses. For example, one pot for emergencies, another for occasional expenses like memberships or property taxes, and another for specific savings goals such as a car, vacation, or down payment on a house.
4. Find the best product for you: There are hundreds of credit cards on the market. Some offer rewards points for travel, groceries, gas, etc. Others boast low interest rates or no annual fees. Taking the time to learn about your options, and what system or program will give you the most in return, will pay off.

Having credit but not needing it is the ultimate peace of mind. By closely following your budget and living within your means, you’ll be able to reach the financial goals you once might have considered pipe dreams.

Be patient and go the extra mile to set yourself up for success. It can seem daunting to rebuild your credit after Bankruptcy but it’s a helpful exercise that will boost your confidence and help you maintain financial control. Speaking with a financial advisor will help you understand the options available to you and determine which one is the right fit for you.

The benefits to Bankruptcy

It may not seem like it, but Bankruptcy does have some silver linings. Now that the hardest part is over, take the time to examine the upsides to Bankruptcy. Use the lessons and skills you’ve learned to make the changes needed to establish yourself as a person with good financial habits.

Set aside any embarrassment or negative ideas about Bankruptcy you might have and consider what you’ve gained:

• You have control of your debt, and your finances overall, again.
• You are a better communicator. Debt is stressful and can cause shame and guilt. Embrace your freedom from those feelings and allow yourself to be honest.
• You have a greater appreciation for money. You’ve gone through your finances with a fine-tooth comb, and you understand how to maintain good financial habits, save money, and stay out of debt.
• You have more time to spend with the people you love. The burden of overwhelming debt is gone and now you can focus on the relationships in your life that might have been impacted.

Whatever stage you’re at in the Bankruptcy process, have faith that the benefits of your hard work will pay off.

Our team of Licensed Insolvency Trustees is here to support you throughout the journey.