Dealing with Personal Bankruptcy: Tips for Handling This Time
Financial issues can be tough. This doesn’t just mean the actual process of making payments, budgeting and juggling bills. It also means the stress and emotions that come along with financial trouble. Having debt, facing calls from collections agencies and trying to manage the entire situation can be stressful, exhausting and even scary. A lot of people feel desperate, hopeless and anxious during this time, which is normal. It’s important to remember that filing for bankruptcy is the start of getting out of this financial struggle.
However, different people deal with filing for bankruptcy in different ways. Many people see bankruptcy as a relief. They have spent years battling bills and handling creditors and they know that bankruptcy is theperson first step to getting out from under a mound of debt and restarting their financial lives. For these people, filing personal bankruptcy is freeing.
The time prior to bankruptcy, when you are considering filing, can be filled with emotions as well. Many people find themselves worried about whether or not filing is a good decision. They stress about how they will deal with the perceived “stigma” of personal bankruptcy. They might fret about how they will recover financially or what they will tell their family and friends. Creditors often make these feelings worse by telling people that filing personal bankruptcy will ruin their life, that they will lose all of their assets and that they will never be able to get a loan again.
The Emotions and Facts Surrounding Personal Bankruptcy
One great way of dealing with the emotions surrounding personal bankruptcy is to understand the facts. Knowing more information about the process of bankruptcy and dispelling some of the myths about it can help put you at ease.
Here are a few bankruptcy myths that you’ll want to keep in mind:
- You won’t lose everything you own. In most provinces, you can keep certain amounts of personal possessions, tools of the trade, furniture, a personal vehicle and – in many cases – your home, depending on the province you live in and the amount of equity you have in the property.
- In Ontario, for example, you can keep $5,650 of personal items, $11,300 in home furnishing, $11,300 in tools of the trade, a personal vehicle valued up to $5,650, and any contributions put into an RRSP more than a year ago. Any pension plans you have are safe too. Your bankruptcy trustee can help you figure out which assets you will be able to keep.
- Your credit rating isn’t ruined forever. A note is made on your credit report once you file for personal bankruptcy. This note remains on your file for at least six years after being "discharged" (the formal release from debt). However, even during this time, you can take steps to rebuild your credit rating after filing for personal bankruptcy.
- Your friends, family and coworkers likely won’t find out about your bankruptcy. Bankruptcies are a matter of public record, but these records are rarely read by the general public. This means that it’s not likely that anyone will find out but your creditors.
Knowing the facts can help you when creditors start threatening you. Plus, once you make the decision and file for personal bankruptcy, creditors are no longer able to contact you directly, so the stress of having to deal with them is gone.
You may also be worried about your future once you have been discharged from bankruptcy. As we mentioned, while a note will be placed on your credit report when you file for bankruptcy, this doesn’t make it impossible to rebuild your financial life once you have been discharged. The best way to alleviate the fears and worry about your financial future is to put together a plan. As part of your bankruptcy, you will need to attend two financial counselling sessions. These sessions will help you learn to handle your finances responsibly and prepare for your life post-bankruptcy.
Building credit after bankruptcy requires you to use credit responsibly. One way to do this is to get a secured credit card. This is a credit card that is secured by a cash deposit. For example, if you put down a deposit of $500, the credit limit on your card will be $500. By using this card and making payments on time, you can start to rebuild your credit. If possible, you should always strive to pay the balance in full in order to avoid excessive interest charges. When trying to rebuild your credit, it’s crucial that you make all bill payments on time. Doing so shows lenders and the credit bureaus that you can borrow money and pay it back responsibly. This will help your credit rating improve.