There sure is a lot of misinformation out there about bankruptcy, how long it lasts and what the long term effects are. Just when I think I have heard it all, someone comes up with a new one, “I heard you can’t have a bank account for 10 years when you’re bankrupt…” A person said that to me just last week.
So, how long does a bankruptcy affect you? There are three answers to that question.
How long you actually stay “in bankruptcy”
This is the period of time from the date you file bankruptcy until the day you are discharged (your bankruptcy is completed). For someone filing bankruptcy for the first time with modest income, bankruptcy lasts 9 months and one day. In other words, if you perform all of your duties properly your bankruptcy will be completed (discharged) 9 months and 1 day from the date your bankruptcy started.
If your income is higher than the government standards your bankruptcy will last 21 months and 1 day.
Of course if you do not complete all of your duties as required your bankruptcy will last until you do – there is no time limit on bankruptcy. If you decide to file for bankruptcy make certain you understand what is required of you during the bankruptcy and do your best to comply with the rules.
How long bankruptcy lasts on your credit report
The fact that you filed for bankruptcy will remain on your credit report while you are “in bankruptcy” and for 6 years from the date your bankruptcy is completed.
If you have been bankrupt more than once, then it may be reported for up to 14 years from the date of your discharge, depending on the timing of your previous bankruptcies.
How long to recover from bankruptcy
That one is entirely up to you. Most people, once they file for bankruptcy, immediately begin to feel better. They are no longer dealing with phone calls from their creditors or struggling to balance monthly debt payments.
Having eliminated their current debt problems, most find they are able to build a stronger financial future. Unless you urgently need to purchase a home for the first time or buy a car, you may not even need to worry about qualifying for credit right away. Many find they are able to live without immediate credit and since they have a stronger cash flow than before bankruptcy, they are able to start saving for when they do.
Having said that, approximately 10% of all Canadians will declare bankruptcy (or file a consumer proposal) at some point in their life. The critical period is the period you remain “in bankruptcy” and the first 2 or 3 years after you have completed the process. During this time access to credit will be restricted. (You are actually allowed to apply for credit during bankruptcy, but you are required to tell people you remain in bankruptcy so the odds of being approved are limited.) Once you have completed your bankruptcy you will start to rebuild your credit. As you build a new credit history after your discharge, credit will become available again.
What about the “I heard you can’t have a bank account for ten years even if you file for bankruptcy?” Of course you can have a bank account if you file for bankruptcy. In fact, one of the last things you do just before you file (or the first thing you do just after you file) is open a brand new bank account.
The idea behind filing for bankruptcy is to give yourself a fresh start, a new beginning. Bankruptcy won’t affect you forever. Failing to deal with your debts may.