Bankruptcy and Credit: Will I still be able to get credit in the future?
Thousands of Canadians file bankruptcy every year, and most of those Canadians have similar concerns. One common concern is that they will end up with terrible credit after the bankruptcy process is complete.
It’s true, bankruptcy will adversely affect your credit score.
When you want to apply for a mortgage, credit card, or any type of loan, a prospective lender will review your credit report. And when you file for bankruptcy, a note to that effect appears on that credit report. That’s because the Office of the Superintendent of Bankruptcy provides a list of every individual who has gone insolvent to the credit rating agencies in Canada.
So what will bankruptcy mean to your overall credit score?
Bankruptcy is reflected with an R9 rating, which is the lowest rating a person can receive. It’s essentially the hardest hit your credit score can take. In Ontario, that notation will remain on your credit report for six years after discharge if it’s your first bankruptcy. But anxiety about the impact of bankruptcy on your credit score is no reason not to get debt help. There are several components that make up your credit score, the biggest one being your payment history.
Chances are, if you’re considering bankruptcy, you may not have been paying your bills on time – if at all. Negative credit information such as late or missed payments and debts that have gone to collections stay on your credit report for the same amount of time as a bankruptcy – six years.
So if you’ve been having financial difficulties, it’s likely that your credit rating has already taken a beating. One major difference is that bankruptcy is a way for you to get the debt relief you need to start fresh so you can begin to rebuild your financial credit – and future. Ignoring your debt, on the other hand, just means that credit score of yours will continue to suffer.
Financial life after bankruptcy IS possible. If you do file for bankruptcy, you can improve your credit rating to make yourself eligible for credit in the future. Your ability to borrow is based on more than just one item on your credit report. A prospective lender will also look at your income, work history, and any other credit you are able to reestablish.
It takes time to rebuild your credit after a bankruptcy – but if you work at it, over time, you can become eligible for credit.