One big fear surrounding the prospect of filing for bankruptcy is the uncertainty of how a bankruptcy will affect your future. I’ve met with people in my office in the past who have said they don’t want to go bankrupt because they’ve heard that it stays with you for the rest of your life and that you can never get credit again.
When filing for bankruptcy you are required to attend two credit counselling sessions. These sessions are free and are a chance for you to get some individually tailored advice for what steps to take in the future to help minimize the negative impact of a bankruptcy. You will review budgeting techniques, shopping habits, money management, warning signs for debt, credit rebuilding and formulating a plan to help you achieve your financial goals and learn tips to help put you back on track to recovery after a bankruptcy.
Here are 10 tips to help you get back on track:
- Make a budget and stick to it – One key step on the road to recovery is understanding different budgeting techniques. You’ll want to have a firm grasp on how to plan financially for the future so that you can monitor on a regular basis what monies are coming in and what’s going out.
- Use cash! – Now that you’re not juggling debts, consider using a cash budget. Some fixed bills like mortgage payments or car insurance are easy to set up as direct withdrawals from your bank account; but try using cash for all other things like groceries, toiletries, and gas for your car. It’s amazing how much you think about spending and saving when you hand cash to someone as opposed to plastic.
- Pay utilities on time – Utility companies don’t normally report to the credit bureau unless you’re payments are late. Don’t damage your credit rating further by getting behind on utility bills.
- Watch your credit report – Check your credit report on a regular basis. Make sure that the information pertaining to your bankruptcy is accurate and that anything new you’re trying to re-establish is there as well. If you don’t check its accuracy, no one else will do it for you. You don’t want to find out when it’s too late that there’s incorrect information being reported.
- Get a secured credit card – Possibly the fastest and most common way to rebuild credit after a bankruptcy is to put a deposit down on a secured credit card. Be careful, it’s a secured card, not a pre-paid card, as they sound similar.
- Avoid financing a car purchase, save up and pay cash – It’s easy to get lured in by lenders offering credit to anyone. Signs that read “all applications approved” are too good to be true. Just because they’ll give you the financing, does not make it a smart choice if they charge 30% interest rates! Unfortunately, one of the most common reasons why we see people filing 2nd bankruptcies is because they signed up for a high interest rate car loan after the 1st bankruptcy was over.
- RRSPs & TFSAs – Prove to the banks that you can be responsible with your finances by investing money into Tax Free Savings Accounts and RRSPs. Putting money into RRSPs can also lead to bigger tax refunds which can be used for further savings and large purchases so that you don’t have to borrow funds.
- Beware of Scams – Beware of companies (particularly on the internet) that offer credit repair services. Only you can repair your credit and paying someone a fee does nothing to speed up the process.
- Know your borrowing limit – If you do need to borrow again, try to remember this golden rule: The amount you borrow should not be any more than what you earn in a month. For example, if you are paid $2000 per month, don’t have debt of more than $2000 at any given time.
- Educate Yourself– Don’t be shy about telling others what you learned from the bankruptcy process, whether good or bad. Use that knowledge to educate your children on steps you can take to avoid a bankruptcy by following some of the previous tips.
Recovering from bankruptcy is not impossible. It’s not a quick fix and it will require some patience along the way, but the benefits of getting your fresh start make it all worthwhile.