Filing for bankruptcy is sometimes the only way to get out of debt. But that information is recorded on your credit history, and knowing that can make the decision to go through with insolvency difficult.
After completing a bankruptcy, that information stays on your credit history for six years from the date of your discharge the first time. If you file for bankruptcy a second time, that information remains for 14 years.
Six years can be a long time, and many worry that it will be difficult or impossible to qualify for a loan in the aftermath. That can mean putting off life goals like qualifying for a mortgage, starting a business, or even securing a car loan.
The good news is that you don’t have to wait to start rebuilding your credit. There are steps you can take right away that will make it easier to qualify for new credit after you’re discharged from a bankruptcy.
First, we’ll look at the process of filing bankruptcy in British Columbia, then we’ll look at the steps you need to take to get your financial health back on track.
How to File Bankruptcy in British Columbia
The process starts by getting in touch with local licensed insolvency trustees, the only professionals in B.C. who can help you with insolvency proceedings. They are licensed and regulated professionals who file your bankruptcy and administer the sale of non-exempt assets and distributing the proceeds to your creditors. The trustee holds the proceeds in trust for your creditors.
Before you can file for bankruptcy, a licensed insolvency trustee must find that you are insolvent. This means that you are unable to pay your debts when they are due. A trustee will assess your debts, income, and expenses to help you determine if you qualify for insolvency proceedings, including filing for bankruptcy in British Columbia or a consumer proposal to settle your debt.
Can You Qualify for a Loan After Bankruptcy?
This is one of our most frequently asked bankruptcy questions and while it may be difficult at first there are steps you can take to qualify. Immediately after a bankruptcy, creditors are likely to be wary of approving a loan. They will look at your credit history and report to assess their level of risk. Negative information on that history like a bankruptcy is a sign of higher risk.
There are some loans you will be able to qualify for more easily. Car loans are known to be easier to obtain, especially through dealer financing departments, though they are often offered at a higher interest rate. You may be able to qualify for a mortgage as early as two years after being discharged from a bankruptcy, but only if you’ve been actively rebuilding your credit.
Another type of credit you can qualify for after a bankruptcy is a secured credit card or a CD loan, a type of credit in which you use money in a bank account to secure a loan with a certificate of deposit. CD loans are easier to qualify for because the bank holds collateral. They allow you to rebuild your credit history, generally at lower interest rates and with budget-friendly payments.
It is possible to qualify for a loan after a bankruptcy. But until you’ve rebuilt your credit history and your bankruptcy has been discharged, lenders will see you as a higher risk, offering loans at a higher interest rate and making it harder to qualify as a result.
Should You Borrow More After Bankruptcy?
Before you borrow more money or open a new line of credit, always ask yourself if this is going to help you rebuild financially or put you right back into financial trouble. Borrowing slowly and smartly to rebuild your credit is smart, but your priority should always be to pay off those loans in full and on time to accomplish your goals. One of the most effective ways to improve your credit rating and avoid interest is to always pay your credit card balance in full and by the due date.
Rebuilding Your Credit
Rebuilding your credit is one of the most important tasks to undertake after you’ve filed for a bankruptcy. Follow these steps to start rebuilding your credit history and report:
#1 Get Your Credit Report
Your credit report is available free by mail from Canada’s two credit bureaus, Equifax and TransUnion. While many people worry about how bankruptcy will look on their credit report, typically they have already missed a number of payments and have a low score.
#2 Take Credit Counselling
Credit counselling is offered as part of filing for bankruptcy. Credit counselling teaches you how to rebuild your credit and manage debts to avoid future bankruptcies.
#3 Use Credit Constructively
To improve your credit rating, you do have to use credit. The most effective way to have a positive impact on your credit report is to pay in full, on time. Make small purchases that you can afford and limit your credit use to a single card.
#4 Be Cautious about Big Loans
Don’t move too quickly getting back into using credit. If you’ve recently been through a bankruptcy, the interest rates offered to you will be high. That’s why it’s better to make small purchases on a credit card you can pay off in full, without incurring any interest.
Living Debt Free
Bankruptcy can feel like a big blow, but life without debt can be rewarding and freeing. There are many reasons people go into debt, and how you got there isn’t nearly as important as how you proceed from here.
The licensed insolvency trustees at G. Slocombe & Associates Inc. treat everyone who comes to us for help with dignity and respect. We focus on your options for getting debt free and using credit counselling to change your relationship to debt.
When you’re debt-free, you’re less stressed out and you’ll discover you have more money and time. Carrying debt is expensive – interest and late penalties make everything you buy on credit cost more. Getting rid of that debt will mean keeping more of your money at the end of every month and relieve the stress of making those payments.