How To Avoid A Second Bankruptcy

Here is a chilling statistic: somewhere in excess of 10% of the adult Canadian population will file for bankruptcy at some point in their life. Of those, 15% will have to file a second bankruptcy.

The reasons people file for bankruptcy range from poor financial management, a relationship breakdown, a loss of employment, a business failure, and income tax debt. There are no published statistics on which reasons are sighted most frequently for a second time bankrupt, but I can tell you that based on my experience it is not for the same reason as a person’s first filing.

If you want to avoid bankruptcy, (or avoid a second bankruptcy) you need to consider the underlying risks and try to reduce your exposure. The easiest way to avoid bankruptcy is to avoid debt. In our society that may be difficult to do, but you can minimize the amount of debt you are willing to incur. Here are three simple tips:

1. You can limit your debt by limiting your credit. There is a connection between the amount of credit available to you and levels of debt you carry that most people fail to recognize. If you don’t have available credit you can’t incur debt. Limit yourself to one credit card. Perhaps have a single line of credit or a loan for large purchases.
2. Always consider how much interest you are paying when you buy something, don’t just look to see if you can afford the monthly payment.
3. Know when you finance a purchase that life events can change.  Ask yourself if you will be able to afford to repay that debt if you temporarily lose your job or if another financial expense like a car repair happens.

What if you are already in financial trouble for the second time?

If you do find yourself in financial trouble consider your “other options” to avoid bankruptcy. Can you consolidate your debt, is a debt management plan appropriate, should you consider a consumer proposal to reduce the total amount you have to repay? A second time bankruptcy will last longer and cost more than your first bankruptcy.

Talk to a bankruptcy trustee about your options so you can find the lowest cost alternative.

There are times when things just go wrong and a second bankruptcy becomes necessary. But if you limit your access to credit you will limit the amount of debt you can incur and therefore reduce the chance you will accumulate more debt than you can deal with.