Step-By-Step Guide To Rebuilding Credit After Bankruptcy

Official blog of Refresh Financial

How To Recover From Bankruptcy or Consumer Proposal: A Step By Step Guide

How to rebuild credit after bankruptcy

While a consumer proposal or bankruptcy can cause a lot of stress and anxiety, what’s in the past cannot be changed. But with the right habits and a few tools to help you along the way, rebuilding credit after bankruptcy wont be as difficult as you have imagined. Download our free step-by-step guide which looks at rebuilding credit after bankruptcy or consumer proposal.

Choosing to go through a bankruptcy or consumer proposal isn’t easy. But for many Canadians, the ability to start fresh is a necessary step on the road to a stable financial future. If you are thinking about (or you have already decided) to file for bankruptcy or consumer proposal, you likely know that most of your debt will be forgiven, with the exception of:

  • Student loans
  • Child support
  • Any outstanding fines or tickets

For many people, filing for bankruptcy or consumer proposal can be a relief. However, it does come with consequences. Most importantly, you will need to rebuild your credit to ensure you have access to the financial products you will need in the future at lower interest rates.  The good news is that you can start rebuilding your credit while going through a bankruptcy or consumer proposal!

We’ve built this guide to help you get through the world of rebuilding credit following a bankruptcy or consumer proposal. In this guide, you will learn not only how to rebuild your credit but also how to implement good financial habits that will get on the road to financial success.

Which is best for me, bankruptcy or consumer proposal?

If you are unsure which is best for you, a bankruptcy or consumer proposal, consider these reasons why a consumer proposal might be the better option for you:

1. Creditor protection

A consumer proposal comes with creditor protection. Once your proposal has been accepted, your creditors will no longer be able to hound you for the full amount of what you owe. That means no legal action can be filed against you, no more harassing phone calls and no more collections.

2. Keeping your existing assets

When you file bankruptcy, you often must turn over many of your assets to be liquidated so that your creditors can be paid. With a consumer proposal, you get to hang on to your assets.

3. Customized payments

The payment plan you come up with during your consumer proposal will be one you can manage and will leave you with something to live on.

4. Less complicated process

The consumer proposal process is far less complicated than declaring bankruptcy and getting to your discharge date. You do not have to report your income and spending each month and you won’t feel like your whole life is under a microscope.

5. Lower impact on credit

In general, a consumer proposal is not as harmful to your credit score as a bankruptcy is. A bankruptcy will stay on your credit report for six years, while a consumer proposal will drop off after three years. How will a consumer proposal affect your credit? That will depend on what else is on your credit report, but it will drag your score down significantly. That’s guaranteed.

Ultimately, whether bankruptcy or consumer proposal is better for you depends on your situation. Your needs are going to determine which is the right choice for you. Whether you’re declaring bankruptcy or entering into a consumer proposal, it will be difficult. It’s important to remember that there is light at the end of the tunnel and there are things you can do to ensure that light is as bright as it can be when it gets there.

How to rebuild credit after bankruptcy or consumer proposal

Step One: Create good habits of discipline and self-control. 

Before you start rebuilding your credit score after bankruptcy or consumer proposal, you must create good habits of discipline and self-control. A lack of these habits might have been partly responsible for your current situation, so working on changing bad habits, and creating new ones will lay the groundwork for a successful financial future.

Research has shown that on average, it takes more than 2 months before a new behavior becomes automatic – 66 days in fact. So, while at the beginning, having to be disciplined and exert self-control over spending money might seem like hard work, stick with it for a couple of months, and very soon it will just become part of your daily routine.

1. Learn discipline through budgeting

Aside from rebuilding your credit, learning how to create a budget and then sticking to it is the most important step of rebuilding credit after bankruptcy or consumer proposal. You’ll be looking closely at your money anyway, so use this time to get a real grasp on your entire financial situation. Understand where your money comes from, and, more importantly, where you spend every penny. You’re going to need to make friends with spreadsheets and familiarize yourself with all your bank and bill statements.

  • Create categories of all your expenses (e.g. rent, electrical bills, car insurance, groceries etc.)
  • Using your past bank statements, look at what you are currently spending in each category. You’ll probably be surprised at how much money you spend in some!
  • Set limits for how much you will spend per month in each category. This will likely mean making some sacrifices to ensure your budget balances (the total amount being spent does not exceed the total amount coming in). However, be realistic - don't tell yourself you're going to stop doing things you enjoy altogether. Instead, cut down on how often you do them. E.g. budget for a meal out once a month rather than a couple of times a week.
  • Get in the habit of planning and recording every single expense, not matter how small. Keep receipts and go over where your money has gone every month. Plan rewards for different milestones along the way. It's important to have things to look forward to and motivate you along the way.

Budgeting takes discipline and sacrifice but keep focused on the goal. You’re doing this to ensure you don’t fall back into the same bad habits as before. You are going to have to change some things - and what better time than while you’re starting over? You’re already doing the work, now the trick is to make this disciplined approach to your finances a habit.

Check out these tips for finding the motivation to stay on budget!

2. Practice self-control in your spending (and saving!)

The golden rule of spending? Learn to live within your means – it sounds simple, but it can very hard to do. However, those who live within their means do not get into trouble with debt, and that’s what you’re working towards for the future! You’ve created a budget, you know exactly what you can spend in each category, now you need to execute on that. Anytime you spend more than you

While in bankruptcy or a consumer proposal, any excess money you earn is going to go to your debtors. That may make it seem impossible to save. That doesn’t mean, though, that saving money shouldn’t be in your plan.

As soon as you are discharged from bankruptcy or your consumer proposal, start saving money every month. Work a specific amount (we recommend 10%) into your budget so that you learn to live within that new budget. Setting up automatic payments and transfers into your savings account on payday will ensure your money goes where it needs to before you even have time to think about spending it.

So where should this money go? First, establish an emergency fund so that you can avoid facing bankruptcy again in the future. A good emergency fund should cover at least 3 months of living expenses. Once your emergency fund is built, continue to save by contributing to your RRSP or TFSA as much as you possibly can while still meeting your month-to-month expenses.

As you can see, the bulk of bankruptcy recovery is forming good habits of discipline and self-control. Once you have made these core habits in your life, you’ll find the next stage of recovering from bankruptcy, building your credit, relatively easy!

Step Two: Work to rebuild your credit after bankruptcy of consumer proposal

Many people believe that you can only start rebuilding credit once you have completed a consumer proposal (3 years!) or a bankruptcy (7!). However, you can actually start rebuilding credit right away.

There’s an old saying that goes “The best time to plant a tree was 20 years ago. The second-best time is now.” We recommend that you don’t wait 20 years, or even 3. Here’s what you need to know to start building credit today.

Here are 3 of the easiest ways to rebuild credit after bankruptcy:

1. Secured Card

A secured card looks and functions just like a regular credit card, with your lender reporting to the credit bureaus on a regular basis. The only difference is that you put up a security deposit in the form of cash which acts as collateral to secure the credit up front. This protects the lender from the possibility of you defaulting on what you owe because your security fund will be used to cover any outstanding amounts.

Because of this, many people are approved for a secured card immediately after being discharged from bankruptcy. It's a great way to start rebuilding your credit risk-free, as long as you maintain good spending habits  and paying your monthly minimum payments on time. To make your credit score increase even faster, pay off what you owe in full each month. If you do this, steadily, without fail, your credit score will start to gain some momentum.

Learn more about the differences between a secured card and a regular credit card.

2. A Secured Line of Credit

Much like a secured card, a secured line of credit is revolving credit that is secured by money you offer up in the beginning. As you use your line of credit and you pay what you owe on time, you will establish a picture of good money habits which will both boost your credit score. These lines of credit are available through most banks.

3. Credit Building Programs

Credit building programs are one of the most effective methods at rebuilding credit after bankruptcy or consumer proposal. Programs like the ones offered by Refresh Financial offer incredible approval rates, and no up-front fees. Instead, they use the principle of the loan as the collateral. This is beneficial in two ways: You don’t have to come up with the security funds, and you leave the program with a nice chunk of money at the end.

There are two major differences between a credit building program and a secured card or line of credit:

  • A credit building program is a form of installment credit which means you borrow a certain amount of money, and you pay the whole amount back in equal installments.
  • Revolving credit (credit cards and lines of credit) means you have access to a set amount of credit, but how much you use, and therefore owe, each month changes.

Step Three: Maintain your good habits for the rest of your life

Rebuilding your credit is not a one-time event. Think of rebuilding your credit after bankruptcy like losing weight.  At the beginning, dragging yourself to the gym and making kale smoothies is hard work. However, as you start to see the weight drop, it becomes easier and easier. What happens when you reach your goal weight? Do you stop going to the gym and start eating pizza for breakfast? No! You just carry on as you are now – because it’s become a habit, and if you slip back into old habits, you’re quickly going to see all of your hard work come undone.

Your goal is to rebuild your credit and create good habits for life. Regularly checking your full credit report from both credit bureaus will help you see how your good habits are paying off. Kinda like weighing yourself to make sure you’re still where you want to be. If you start seeing negative results, take stock of what’s happening in your life that could be causing it and make changes to quickly get back on track.

Ultimately, whether you’re declaring bankruptcy or entering into a consumer proposal, it will be emotionally difficult. There is a light at the end of the tunnel though. Many people don’t realize that you can start building credit while going through both a bankruptcy or consumer proposal so that at the time of discharge, you’re already a few steps ahead. Follow these steps and you’ll find that rebuilding your credit after bankruptcy isn’t as difficult as you first imagined.

Get back on the road to financial recovery with help from Refresh Financial

Using the Refresh Financial secured card will build your credit score as long as you actively use the credit card each month and make your minimum payments on the due date (although making more than the minimum is always better!). Your security deposit will act as the limit on the credit card.

  • Does not require a credit check.
  • Reports to both credit bureaus as 'revolving credit'
  • You are required to make a security deposit equal to the amount of credit requested (minimum $200).
  • Guaranteed approval.

Apply now!

There is only one way to build credit - by borrowing responsibly and making your payments on time. The main difference with Refresh is that you are actually saving money. Every payment you make towards your credit building loan gets reported to the credit bureaus, giving you that all important positive payment history.

  • Does not require a credit check
  • Reports to both bureaus as 'installment credit'
  • No security deposit required
  • 97% of applicants are approved


Refresh financial offers custom credit building solutions to help you build your credit score FAST.

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