Starting Over after Consumer Proposal or Bankruptcy

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Choosing to go though a bankruptcy or consumer proposal is not an easy step. But for many Canadians, it is a necessary first step down the road to a stable financial future. If bankruptcy or consumer proposal is the route you have chosen, most if not all your debt will be forgiven including tax debt.  For many people, filing for bankruptcy or consumer proposal is like having a huge weight taken off of their shoulders. However, it does come with consequences. Most importantly, you will need to rebuild your credit to make sure you have options in the future when it comes to borrowing, at a reasonable and affordable interest rate.

Create Good Habits of Saving and Spending

-Learn discipline through budgeting. You’ll be looking closely at your money while reporting to the trustee, so use this time to get a complete picture of your entire financial situation and understand where you spend every dollar.

-Put your expenses into categories (rent, bills, car insurance, groceries, etc) and use past bills and bank statements to understand your past spending patters.  Take a critical look at your impulse spending and your restaurant and dining out expenses.  These are often key areas that can immediately be reduced.

-Set limits or goals for your spending per month in each category. This may mean making sacrifices to make sure your budget works each month.  Set priorities – make sure you are address your needs before your wants.

-Get in the habit of recording every single expense, no matter how small. Plan for different milestones along the way- like Christmas, birthday, holidays, or irregular payments.  And don’t forget to reward yourself along the way – small victories such as when you saved up for a night at the movies or a dinner at your favourite place with friends.

-Practice self control in your spending. While in bankruptcy or a consumer proposal, any excess money may be going to your creditors and this may make it hard to save, but it shouldn’t mean that saving isn’t part of your overall plan.

-As soon as you are discharged from your bankruptcy or consumer proposal, start putting money aside each month.  Like the payment you had been making to the trustee prior to your discharge, – once discharged, instead set up an automatic payment to put this amount in your own savings account on each month.

-Establish an emergency fund (separate from savings) that will cover at least 3 months of living expenses. Once your emergency fund is built, continue to save by contributing to an RRSP or TFSA as much as you possibly can while still meeting your monthly expenses.

Rebuilding your credit

Building credit is not a one-time event.  It measures your behaviour over time – like a grade point average in school.  Each class you take affects your overall score.   Your goal is to rebuild your credit and create good habits for life. Regularly checking your full credit report from both credit bureaus will show you that your good habits are paying off. If you start seeing that your score in going down, you can make changes to quickly get back on track.

Some people think that they cannot influence their credit score during a bankruptcy or proposal.  This is not true.  Under a bankruptcy it is true that you must turn all your credit cards over to your trustee, but this is not the case for a consumer proposal.   Your proposal trustee will notify anyone that you owe money to under your proposal, but if you have a credit card with a Nil or zero balance, you can keep this credit card in a proposal.  Even during a bankruptcy or a consumer proposal, there are credit card companies that offer secured credit cards specifically geared to un-discharged debtors.

Also, while under a proposal or bankruptcy, it may be the case that you have the financial ability to maintain your payments to secured creditors for assets you are keeping.  This would include car loans or mortgages payment for your home, if you opt to keep these assets.  This type of debt repayment is positively reported to the credit bureau throughout your consumer proposal or bankruptcy.

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