How Long Does Bankruptcy Affect Me?


Category: Personal Bankruptcy (6) comments

how-long-does-bankruptcy-affect-meThere 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 “be bankrupt”

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 nine months and one day.  In other words, if you perform all of your duties properly your bankruptcy will be completed (discharged) nine months and one day from the date your bankruptcy started.

If your income is higher than the government standards your bankruptcy will last 21 months and one 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 six 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 two or three 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.) You can slowly start rebuilding your credit during your bankruptcy using a secured credit card. Once you have completed your bankruptcy you will start to rebuild your credit. As you build a new credit history after your discharge, traditional 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.

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  1. shawn

    I was discharged from bankruptcy approximately five years ago and a student loan was included in that. But the Canada student loans center still sends me statements every year saying that I am in arrears. When I call them they it just a statement of what happened on the account. What can I do about this to get it stopped. I feel that they are still harassing me about the loan and I am not sure if this is still going against my credit score because they say that I am in arrears.

    Reply
  2. Ted Michalos Post author

    First, you should check your credit report to see what is being reported. You are entitled to one free copy per year and I encourage everyone to take a look just in case something has been misreported.
    In regards to the student loans, are you certain they were discharged (eliminated) as part of your bankruptcy? If you hadn’t been out of school for at least 7 years when you filed for bankruptcy the debt would have survived. You may want to check with your trustee.
    Assuming the debt was discharged, send Student Loans a registered letter advising them to either proceed to Court or stop trying to collect. If they go to Court you need to show up and show the Court your bankruptcy documents. If they go away you should still check your credit report every year to make sure it doesn’t “come back”.

    Reply
  3. Janice

    I just learnt that a close family member declared bankruptcy. Had I known, I would not have hesitated to pay their debt to avoid this, however I found out after the fact. Is there any way to reverse this so that I can pay the debt for them? They also were suffering from a medical condition which may have affected their judgement.

    Reply
    1. J. Douglas Hoyes

      Hi Janice. Once a bankruptcy starts, you must either complete it, apply to the court for an annulment (which is difficult), or file a consumer proposal while bankrupt. I suggest you discuss this with your family member’s trustee.

      Reply

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