What Happens When I Am Discharged From Bankruptcy

2018-01-24   minute read

Caryl Newbery-Mitchell


First, congratulate yourself! You took the difficult first step of filing for bankruptcy and have earned yourself a fresh start. You've likely already learned a few lessons about better budgeting and managing credit. Now is your opportunity to put those to good use.

One of the most common concerns people have when considering bankruptcy is the damage it will do to their credit. It is only natural, then, for those on the other side to wonder how they can go about repairing it – so they can capitalize on the debt free life they worked so hard to achieve.

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Bankruptcy and Credit

While in bankruptcy, you were unable obtain credit for greater than $1,000 without disclosing your situation. In the future, you will still be required to disclose that you have previously filed a bankruptcy whenever you are asked. At first, this can make it difficult to convince creditors to take a chance on you. However, over time you will find obtaining credit does become increasingly easier.

If you claimed bankruptcy for the first time, a record will remain on your credit report for between six and seven years from your date of discharge. If it was your second time or more, it will remain for 14 years. Though this may seem daunting, there are steps you can take in the meantime to offset your bankruptcy record and make yourself more favorable to potential lenders.

Rebuilding Your Credit

Secured Credit Cards – Perhaps the quickest and safest way to begin rebuilding your credit is with a secured credit card. This functions just like a regular credit card – except, you will be required to provide a deposit for an amount equal to (or possibly less than) the credit limit on the card.

As you use the card and make regular payments against the balance, your activity will be reported to the credit bureaus. Over time, you will begin to see improvements in your rating. Provided you maintain a good payment history, you will eventually have the deposit returned and the card will mature into a conventional credit card.

Registered Saving Plan (RSP) Loan – Many banks will offer you loans to help maximize your annual retirement savings contributions and optimize your tax refund for the year. This can have the added benefit of helping to build your savings, but must also be approached with caution. This is only a good option if your tax refund will be sufficient to repay the loan in its entirety or if you can structure a repayment plan that takes no longer than a year to pay off.

Borrower Beware

Vehicle Loan – The vehicle lending industry will often target their marketing directly to individuals with bad credit or who have gone through bankruptcies – offering anywhere between zero and five percent financing for new purchases. If you're in the market for a new car, but don't have the cash to purchase one, this can seem like a lucrative option. Remember, though, cars lose value quickly and make outweigh the benefits of a low interest rate. Be sure you understand all the fees and rates being charged before making your purchase.

Mortgages – If you're considering a new home, you may want to wait until you've rebuilt your credit to pursue a mortgage. This will allow more options to become available, including better interest rates, lower down payment requirements and more competitive offers from prospective lenders. When you do decide to move forward, speaking with a mortgage broker can help you access a broader network of financial institutions and greater flexibility in terms of lending criteria.  

If you are considering bankruptcy and are worried about the impacts to your credit, you're not alone. Though the short-term consequences may seem daunting now, they are often outweighed by the many benefits of a financial fresh start. Meeting with a Licensed Insolvency Trustee for a Free Confidential Consultation will help you better understand your options and decide whether a Life-Changing Debt Solution is right for you.

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