One of the greatest fears people have about filing for bankruptcy in Canada is what a bankruptcy will do to a credit rating.  When you begin to fall behind on paying some of your monthly bills, the threatening letters and calls begin.  One of the major scare tactics collection agencies use is the loss of access to credit. 

When a frightened consumer hears the dire consequences filing for bankruptcy in Canada can have on their credit rating, they often assume the worst and fail to get straight information on exactly what a declaration of personal bankruptcy does to your ability to access credit.  Here are three things you need to know: 

1. Filing for bankruptcy in Canada does not end your ability to get credit for the rest of your life.
2. You do not have to wait until the notation of your bankruptcy declaration falls off your credit report to begin the process of credit repair.
3. You can start the credit repair process while you are still in bankruptcy.

First, despite what you may have heard or what some unscrupulous credit collector implied, the truth is people can repair their credit rating after they are discharged from bankruptcy.  In fact, some experts estimate the repair process can take as little as twelve to eighteen months.

When the Office of the Superintendent of Bankruptcy (OSB) reports your bankruptcy filing to the credit bureaus, each of your unsecured accounts receives an R9 rating – the worst you can get.  While in bankruptcy, you cannot apply for any new credit.  Once discharged, the R9 rating remains but the balances of each of your accounts are reset to zero.  While it is true potential lenders will see you have been through a bankruptcy, they will also see you are now virtually debt free, which makes you a worthy credit risk in the eyes of some lenders if you have stable income.

Second, there is another myth about bankruptcy’s impact on your credit that says you cannot apply until the bankruptcy notation comes off your credit history six years after the date of your discharge.  This is not true.  You can start the credit repair process immediately and there is no reason you cannot apply for secured credit cards as long as you have stable income.

Third, as soon as you file for bankruptcy in Canada you will no longer be making monthly debt payments to your unsecured creditors.  The result is you will have more disposable income available.  Even higher income filers who may be required to contribute some of their monthly income while in bankruptcy will have more money left at the end of each month than they did before filing for bankruptcy in Canada. 

Starting a disciplined savings plan is a strategy you can use to speed the credit repair process along once you get your discharge from bankruptcy.  To repair your credit you have to borrow and then make timely repayment.  In the early stages, it may be difficult to borrow, particularly for lower income Canadians or those with less stable employment histories.  

Cash on hand helps repair your credit after filing for bankruptcy in Canada in two ways.  First, secured credit cards require cash deposits that become the credit limit on the card.  Second, you can use a savings account balance as collateral for installment buying.  Even if you can afford to pay cash for that new refrigerator or television, buying on an installment plan is a chance to demonstrate credit worthiness.