How to avoid bankruptcy … again

You’ve filed for bankruptcy and are on your way to having your debts eliminated. Now what?

If you’re one of the 70,000 Canadians who file for bankruptcy every year, you go to work every day, submit your income statements to your trustee every month, and meet your payment obligations in order to be discharged from bankruptcy and move on with your life. However, you may be one of the 15 percent who file bankruptcy for a second time, or in the 1 percent who are doing it for a third time.

So how can you avoid multiple bankruptcies? Learn the lessons accorded by your first (and hopefully final) bankruptcy.

In bankruptcy (after you’ve liquidated your assets and filed your required forms and statements), you’re basically required to attend two credit counselling sessions, submit monthly income and expense statements to your trustee, and make income surplus payments (if applicable). You are not able to accrue more debt.

That last part is mostly taken care of, as most companies offering credit will not consider you until you have been discharged from bankruptcy. However, when applying for credit, you don’t have to reveal that you’re in bankruptcy if you’re applying for $500 or less, which could be taken advantage of by the bankrupt person’s shopping at various rent-to-own outlets or by merchants who are more interested in making a sale.

After bankruptcy, you can begin building up your credit profile again and 85 percent of people will learn from the experience, live within their means and accrue credit wisely. However, sometimes life gets in the way and people get downsized from their salaried positions, illnesses force the erosion of savings, or children need help with post-secondary educations.

As a means of avoiding a second bankruptcy, it may be beneficial to look at a consumer proposal instead. With the help of a trustee, a person makes a proposal to creditors and, if the consumer proposal is accepted, makes an established monthly payment for dispersal to said creditors. It takes longer to discharge than it might in a bankruptcy where the bankrupt person has to make surplus payments, but the payments may be smaller (allowing the person to live within their means over the course of repayment).

If you want to avoid both those alternatives (both of which can seriously affect your future borrowing needs), live on cash during your bankruptcy (you’re more reticent spending cash), stick to a budget, and find cheaper alternative products and services.

And most importantly, pay your taxes. Tax debt accrues very quickly (due to fines and penalties) and is one of the major reasons for bankruptcy filings.

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