By Vanessa Roman
There are many reasons why people fail to pay their debts; sometimes it’s because of a serious illness, maybe the death of a loved one, a job loss or divorce. And yet, for others, it simply boils down to a complete lack of fiscal responsibility, as they amass more debt than their income can pay for.
Declaring bankruptcy feels like the end of the world to many people, and understandably so. The event comes with negative social stigmas, feelings of embarrassment and poor self-worth, and it seriously limits your financial opportunities for many years afterwards.
But all is not lost. If purchasing an investment property after bankruptcy is your goal, it’s certainly possible if you manage your financial affairs wisely.
Start by arranging a repayment plan (often called a consumer proposal) with your creditors. This will help to get you back on your feet by arranging a manageable schedule of repayments. If your debts are so large that repayment is not possible, then declaring bankruptcy may be your only option to forgive some or all of the debts you have incurred.
Declaring bankruptcy will, of course, have negatively impact your credit rating, because it remains on your credit file for three to five years. It will also be a permanent part of your life history because, when asked if you have ever been bankrupt, you will be legally obligated to answer “yes”. But when structured properly, bankruptcy gives you a second chance to rebuild your credit, and that means future potential to successfully apply for a new mortgage, by earning steady income and living within your means.
Applying repeatedly for new credit every few months – whether for credit cards, furniture store layaways, car loans or any other type of credit application – can actually count against you because each time a business accesses your credit file it lowers your overall credit score.
A more sensible plan in the years following bankruptcy is to pay all of your bills in full and on time while saving as much money as you can for your future investment – at least 20 per cent. These actions help to develop a positive credit score and the larger your down payment for a new property, the more favourably a financial institution will view your mortgage application.
Remember the fable about the tortoise and the hare? Rebuilding your financial reputation takes time and there is no quick fix. Be thankful for the second chance you have been given; learn from your past financial mistakes and use those lessons to rebuild your financial future.
Vanessa Roman is the host of HGTV's Reno vs Relocation. She is also a licensed real estate agent who divides her time between Halifax and Toronto.
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