📅 Last Updated: October 4, 2021
✏️ Written By Kale Havervold
🕵️ Fact-Checked by Caitlin Wood

London is a great and well-connected place to live but isn’t free from its problems. Chief among them is that it is one of the more expensive places to live in Canada. Couple that with the fact that most residents in London make a lower income than the average Ontarian or Canadian, and you have a recipe for potential financial issues.

For the 2019 bankruptcy surplus income limits, click here.

Some consumers in London may be unable to afford the high cost of living, will borrow money and then be unable to pay it back as their incomes are not high enough to cover the added cost of one or more loan payment. Many people in London find themselves struggling to get ahead of their debt, but thankfully there is a solution. Bankruptcy is a way to eliminate most of your debt, but it doesn’t come without its costs.

Personal Bankruptcy Explained

How Does Bankruptcy Affect Your Credit in London?

As you are likely aware, bankruptcy is when you will lose many of the things you own, but in return, your debt will be eliminated. While this is a good option for some, it is important to know what the costs are that go along with filing for bankruptcy. One of the biggest potential issues with filing for bankruptcy is just how bad it can be for your credit in London.

In addition to a credit score, the credit bureaus also give each of your accounts a credit rating which represents if your account is in good standing or bad standing. It is measured on a scale from 1 to 9. On this scale, perfect credit is reflected as a 1. On the other hand, each of your accounts associated with the bankruptcy will be given a 9, the worst possible score.

In addition to your credit rating remaining a 9 for six years after your discharge, the bankruptcy note will remain on your credit report for six years, plus the period you are bankrupt. However, that is only for your first bankruptcy. If you file a second time, the bankruptcy note will appear on your report for 14 years (for more information about filing for bankruptcy a second time, click here). So as you can see, bankruptcy is quite bad for your credit.

While bankruptcy is indeed bad for your credit, sometimes it is worth it to file. When it’s truly the only option for you, sometimes it is better to start from scratch and rebuild your credit after a bankruptcy than it is to continue struggling with an insurmountable amount of debt.

Everything you need to know about bankruptcy court in Canada.

Tips to Repair Your Credit After Bankruptcy

Speaking of rebuilding your credit after bankruptcy, what can you do to get your credit back on track? Thankfully, there is a list of things that can help build up your credit after it has taken a hard hit such as bankruptcy. This includes:

  • Get a copy of your credit report and check it for any errors or issues
  • Pay your bills on time and in full
  • Utilize a secured credit card
  • Save more money and use your credit card responsibly
  • Don’t constantly apply for new credit
  • Keep old credit accounts open
  • Ensure that your credit utilization is less than 30%

While there are plenty of ways to improve and repair your credit after a bankruptcy in London, it is important to know that it won’t happen overnight. Your credit will take some time to improve but if you keep at it and remain dedicated to improving it, you will see it grow.

Canadian Credit ScoreFor more information about what affects your credit score, check out this infographic.

Be Sure to Research Pre-Bankruptcy Options in London

While bankruptcy is an option that is talked about a lot when it comes to getting out of debt troubles, it is far from the only one that people in London can use or consider. In fact, there are other options that are less severe and extreme than bankruptcy that you should consider first. We’re going to go over a couple of them now.

Debt Consolidation

Debt consolidation is when you take out a larger loan to pay off all of your smaller loans. The main benefit of this is to simplify your monthly payments, as you will only be stuck making one payment, not many. Another benefit of debt consolidation is that it can also get you a more affordable interest rate. In addition to a debt consolidation loan, there is also a debt consolidation program which you can consider. With this program, you’ll work with a credit counsellor in London who will create a repayment plan that your creditors need to accept. Then you’ll make your monthly payments through your counsellor who will distribute them to the appropriate creditors.

Debt Settlement

Debt settlement is when you offer to “settle” the debt with your creditors. For example, if you owe $10,000, you could offer to settle the debt for $6,000. This is a good option as it can save you a lot of money while getting you out of debt. Of course, there is no rule saying that your creditors must accept your offer, but if it is fair, there is a good chance that they will.

Consumer Proposal

Arranged by a trustee, a consumer proposal is when you make an official proposal to your creditors to pay off a portion of your debt (check this out for more information). It is a legal process in London that can sometimes save you from having to file for bankruptcy. In addition to proposing that you pay back a certain percentage of your debt, a consumer proposal can also propose an extension to the amount of time you have to pay back your debt.

These are all options you should at least think about or consider before deciding to file for bankruptcy. They are less extreme and do much less damage to your credit report.

Is Bankruptcy Right For You?

Deciding whether to file for bankruptcy or not can be a difficult choice. If you want to learn more about this option or see if it’s right for you, feel free to reach out to us at Loans Canada.

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