While it would be lovely if everyone always had enough money for what they need, that isn’t the case. In fact, it is often the opposite. Because of rising costs of living, housing prices and more, many Canadians are struggling with debt.
In particular, many of those in Kitchener and the rest of Ontario are struggling. Unfortunately, nearly half of Ontarians are not confident they can cover their costs without going into more debt.
If you find yourself under a mountain of debt and see no way out, one option you will eventually consider is bankruptcy. Bankruptcy is a way for many people to get a fresh start by relinquishing most of what they own in exchange for the elimination of their debt.
Can I file for bankruptcy online? Find out here.
How Does Bankruptcy Affect Your Credit in Kitchener?
While bankruptcy allows you to become debt-free, it also comes with a cost. Your credit will take a major hit after you file from bankruptcy in Kitchener. This is to be expected, but some are still shocked to learn just how much your credit is affected. All credit accounts get a credit rating between 1 and 9, a perfect credit rating in Canada is 1 and the worst you can get is a 9. Unfortunately, when you file for bankruptcy, your credit rating will be set at 9. Not only that, but your credit rating will remain a 9 for at least 6 years, following your bankruptcy discharge.
However, that is just for your first bankruptcy. If you go bankrupt a second time the damage can be even worse. Your second bankruptcy will remain on your credit report for a total of 14 years. Your credit score will also likely take a major hit during either a first or second bankruptcy. However, this type of damage to your credit shouldn’t always turn you off of a bankruptcy. Sometimes, it is better to start fresh and slowly rebuild your credit back up again, than it is to struggle with insurmountable amounts of debt.
In addition to using bankruptcy as a way to start fresh in Kitchener, you should also treat it as a little bit of a wakeup call. Use it as a sign that it is time to change and improve your financial habits. The last thing you want to do after starting fresh is to slip right back into the same old habits that led you into financial trouble previously.
Check out this infographic to learn more about what affects your credit.
Tips to Rebuild Your Credit After Bankruptcy in Kitchener
So once you have made the choice to file for bankruptcy in Kitchener and it has all been made official, it is time to start rebuilding up your finances. It could potentially be a long journey, but it will be worth it in the end. Thankfully, there are several different things that you can do to help rebuild your credit after a bankruptcy. These include:
- Pay all of your bills on time and in full. Once you make a habit of missing payments, your financial situation could spiral out of control.
- Get a copy of your credit at least once a year and evaluate it. Mistakes can occur on your report which could hurt your score, be sure to be vigilant.
- Use a secured credit card.
- Make a budget and stick to it, make it a real point to save more and spend less.
- Try not to apply for too much new credit around the same time, as that can actually hurt your credit.
Of course, the things that work best for you may be different than what works for others in Kitchener. It can be a good idea to work with a credit counselor in Kitchener during this phase to come up with a plan of what works for you. Of course, while they can help, it is ultimately you that needs to make the change and be willing to make sacrifices to improve your credit and finances as a whole.
Your Pre-Bankruptcy Options in Kitchener
While many people in Kitchener choose and need bankruptcy to fix their financial problems, it is far from the only option you can choose. In fact, with how extreme and potentially damaging bankruptcy can be to your finances, there are several other debt relief options in Kitchener you should consider first. Any Licensed Insolvency Trustee (LIT) should be sure to speak with you about these before recommending bankruptcy.
Debt Settlement
You will come up with an offer to settle your debt with your creditors for less than the total amount. So if you owe $10,000, you may make an offer to settle the debt for only $6,000. Of course, your creditors need to agree to the settlement so be sure it is a fair deal.
Debt Consolidation
This is essentially when you take out one large loan in Kitchener to pay off and cover all of your eligible debt. This can make your payments much simpler every month, and can also potentially get you a lower interest rate.
Consumer Proposal
This is a legal process in Kitchener between yourself and your creditors to pay back a portion of what you owe. It is generally seen as the step right below bankruptcy and is less extreme as it does less damage to your credit and doesn’t force you to give up any of your belongings.
The option you choose will depend on your unique situation and what your LIT believes is the best course of action to take.
For more information about filing a consumer proposal, check out this article.
Is Bankruptcy Right For You?
Are you still unsure if bankruptcy is right for you and your needs in Kitchener? If so, don’t hesitate to reach out to Loans Canada. We will help set you up with an expert in your area.
