Earlier this week, I realized that the 3 year anniversary of my bankruptcy discharge was coming up on June 11, 2011. No, I’m not throwing a party, but I am quietly celebrating by writing this article. The 3 year mark is significant. That means that I’m half way to the point where my bankruptcy will fall off my credit reports. The second half of the countdown will be easier to live with and time will pass faster.
Some people think that a bankruptcy stays on your credit report for 7 years, or at least harms your credit worthiness for 7 years. Others say 6 years. Essentially, your credit is harmed for almost 7 years. Providing you comply with all requests, submit your monthly reports while you’re an undischarged bankrupt, and if it’s your first (and hopefully last) bankruptcy, you get an automatic discharge after 9 months. During those 9 months you are bankrupt and you can’t (and aren’t even permitted to) obtain credit, except for rare and extenuating circumstances, I’ve heard. Then your bankruptcy stays on your credit report for 6 years after the date of discharge (14 years if it’s not your first bankruptcy). So, that means, under ideal conditions with everything moving along as quickly as it can, your credit worthiness is hit for 6 years and 9 months. That’s almost 7 years.
I’m not sure if the bankruptcy promptly drops off exactly 6 years after discharge or if it can still take a few weeks or months. But I’ll sure be watching my credit reports at the end of my 6 years, in June and July 2014. If it takes too long, I’ll send in a copy of my discharge to Equifax and TransUnion and ask them to update my credit report.
I still remember filing for bankruptcy on September 11, 2007 in Barrie, Ontario. The 9 months of being an undischarged bankrupt seemed to pass quickly, as I was really busy and had a lot of other things on my mind. But then, time seemed to really drag after June 12, 2008 (my first official day being a discharged bankrupt Canadian).
In the first year, and even into the second year after my bankruptcy discharge, I kept thinking about the bankruptcy, lack of credit, self-esteem and my future. I was alone. Up to the filing of bankruptcy, I had a bit of support from a close friend who had gone bankrupt many years earlier, when the credit world was all together different. During the bankruptcy, I had to fill in my monthly statements for my Trustee in Bankruptcy and could always call the trustee’s office if I had any questions.
But once I was discharged, I felt alone. Like the reins had been cut and I was set free. Sure, I felt a great sense of relief. A huge weight and burden had been lifted from my shoulders and I could walk a little lighter. But upon discharge, the trustee essentially told me that their work was done and I’m on my own (not in those words, but that was the general idea).
There was little information available online or offline about what to do after being discharged from a bankruptcy. And to an extent, it’s still like that. Filing for bankruptcy is very structured. What you need to do afterward is very subjective. It may be a bit more common these days to encounter people with a recent bankruptcy on their credit reports, especially with the economy the way it is. Misinformation was, and still is common.
But back in 2007, when I filed for bankruptcy, the economy was in the early stages of the crash, which was felt a lot more in the United States. So when I got discharged in June 2008, many people were still unfamiliar about dealing with recently bankrupt people. The way it used to be was no longer the norm. Credit guidelines were quickly tightening up. Many of the more lenient options that had been available in good times were no longer available. In some ways, it’s still the same in June 2011, but things have stabilized a bit now and thanks to the current economic conditions, there are more ex-bankrupt Canadians than ever!
So how has it been for me? It’s been a learning experience. I discovered that a lot of people really do not know much about rebuilding credit after bankruptcy. Conflicting and contradicting information is still common. Of course, not every lender, credit issuer or anyone who looks at your credit is equal. Some are more lenient, some are more strict. But I’ve learned a lot, and shared it with you here on this website.
The general rule of thumb for obtaining unsecured credit without a cosigner is to be at least two years past your bankruptcy discharge and have at least one year of NEW (and perfect) credit after the bankruptcy. I’ve discussed this many times in other articles, so I won’t go into detail here. But suffice it to say, secured credit cards (where you must put up a deposit) is the best, and possibly the only way to start rebuilding your credit in this day and age. I do not recommend financing a 5 year old used car at some ridiculous interest rate like 35%. Some unscrupulous used car lots take advantage of desperate ex-bankrupt people. However, if you must have a car, and can’t wait, then do what you have to do.
The first year after my bankruptcy discharge, time dragged on. I remember thinking “OK, 1 year down, just another 5 years to go!” That seemed like it was so far away. I checked my credit reports and scores monthly, cleaned up some errors on them, and got my first secured credit card, a Peoples Trust MasterCard with a $500 deposit, and hence, a $500 credit limit. I’ve since increased it to $2000 by sending in more money to put towards my deposit.
Then I got a Fido cell phone on a contract plan. I was so nervous applying for it because I knew they did a credit check. I was happy they let me have an account, which was limited to $200. That meant my balance, including unbilled calls (before discounts) could not exceed $200. I never ran into an issue with that. And to be sure I was never late on a bill, I set it up for automatic payments, which I still do this day. I now get offers to add more lines and get phone upgrades. I don’t take them, but it makes me happy to know that my credit worthiness with Fido is good enough to qualify for these things.
Then the big one… A NEW CAR! In October 2010, I took the bold step to try and finance or lease a new car. I did a lot of research and asked a lot of people a lot of questions. Even with all that preparation, I was almost rejected. In retrospect, I might have been better off going to a Ford dealer, since Ford Credit has historically been the most lenient lender in the auto industry.
But I had a prior lease from Toyota Credit Canada (from April 2006 to September 2007) that was in perfect standing prior to filing for bankruptcy. Although I came very close to just parking the car at the dealership and walking away from it in September 2007, thus subjecting myself to a voluntary repossession (a huge black mark on a credit report), I found someone to take over the lease, so there were no negative consequences. I could have actually kept that car through the bankruptcy since a leased car has no equity. But I was trying to save money and did not want the car anymore.
Because of my previous and recent good credit with Toyota, several finance managers at different Toyota dealerships felt confident that my good credit with Toyota Canada would help me get approved. Well… it didn’t. Maybe the finance manager didn’t have as much experience as she let on, but in the end, and after submitting A LOT of paperwork and proof of everything, I got approved for financing from TD Financing Services on a 2010 Toyota Corolla S. I was hoping to get approved by Toyota Credit Canada, and had considered going down the street to the Ford dealer to try getting financed on a Focus (leasing wasn’t available then).
But since it was a sure thing with the nice little Corolla, financed by TD, I decided to take that offer and not look any further. It’s not the car I wanted (neither was a Focus), but when you’re an ex-bankrupt, and trying to get a reasonable finance or lease rate without a cosigner, and only have a certain amount of money as a down payment, you can’t be too picky. You take what you can get! It’s the financing you want to further reestablish your credit. And a reliable form of transportation is a nice bonus!
Moving right along, the next step along the road to life after bankruptcy was to get one more secured credit card: a Home Trust Visa. I got in in January 2011 and started with a $500 limit but soon mailed in another $500 deposit to give me a more realistic $1000 credit limit.
Since then, I have not attempted to get any more credit – secured or unsecured. At this point, I have a nice assortment of revolving credit and installment credit. A mix of different types of credit is better than just one type. Right now, I plan on continuing with timely payments and keeping the credit I have. In about a year, I will re-evaluate the possibility of obtaining any new credit. My Fico credit score and credit reports can only get better!
Originally I had planned on getting a mortgage on a condo or a modest house. But then due to issues with my elderly parents, I decided that the best thing for them was for me to live with them, or at least close to them in order to help them out. My plans for buying a house were put on hold, but since I had done all that work building up my credit, and felt confident I was ready to finance a major purchase, I got the car instead.
Looking back on where I was three years ago, and where I am now, I have come a long way. I’ve grown a lot as a person and have become very well educated on the Canadian credit system. Here’s to another awesome 3 years! And to those of you just being discharged, or who have been discharged for a while but thought there was no hope, there IS hope. It just takes some effort on your part.