Bankruptcy Discharge: How to rebuild your finances
Congratulations! Your bankruptcy period is over and your debt troubles are far behind you. You might now notice that the Bankruptcy has left a mark on your credit file and you are finding it difficult to start over. Here are some tips on how to get your credit rating back on track and how to rebuild your financial portfolio.
Forgiven, not forgotten.
Your debts have been forgiven, you have lived with a Bankruptcy for 3 years and you have now been discharged, so why is it still difficult to borrow money? As far as your credit file is concerned, no activity can be just as damaging as bad activity. For the last 3 years, you have had no debts to repay so your credit file has been sitting idle with a bankruptcy mark against your name.
Now the bankruptcy has gone, you’ve got nothing to show for your credit history but a blank page. This can turn banks off lending you money as they can’t see your repayment habits. They don’t know if you have good money management skills or not.
Laying the foundations
While it is entirely possible to borrow money again after a bankruptcy, you shouldn’t be expecting to get a mortgage 6 weeks after your discharge date. It will take a little bit of time and effort to rebuild your credit score to a point where you would be considered a low risk client again. The best way to start rebuilding your credit score after a bankruptcy discharge is by starting small.
You should apply for a small and affordable personal loan, to the amount of $5000. Make sure you can afford the repayments first by using an online repayments calculator. Then set up a direct debit so you make each repayment on time and in full. After 6 months, you will have a loan on your credit file with no late payments and no defaults. You should see a notable improvement in your credit score after this period. This will make it easier to get a larger loan.
IMPORTANT: Don’t use a payday lender to secure a small loan. Even if you make all the repayments on time, pay day loans can hinder your credit file and the interest rates are very expensive. If you are having trouble finding a loan, use a broker to search for a non-conforming lender. You can spot a payday lender as they generally offer small loan amounts with a fast turnaround and have very little lending criteria, ie: No credit check.
It is unrealistic to think a person can get through life in Australia without needing to borrow money for something, whether it be a car, a home, medical costs or a holiday. But now you are on the other side of Bankruptcy you should understand the importance of living within your means. Improving your credit file after a period of bankruptcy is great, but just because you can borrow money again, doesn’t mean you have to rush out and get a loan. If you are looking at borrowing money, make sure you can afford the repayments over the period of the loan.
Each bank uses a different formula to determine how much money they will lend you and sometimes the amount they offer is very generous. Do your own sums to determine how much you should borrow compared to how much you can afford.
Have a backup plan
During your bankruptcy with no debts to pay, you might be in the habit of putting extra money aside into a savings account. If not, this is a great habit to start. Having an amount of money stashed away comes in handy for a forgotten bill, an unexpected event, an emergency situation or even a rainy day. Having a savings account means you don’t have to rely on an emergency credit card or a payday loan in your time of need.
You should also look into life insurance and income protection insurance to make sure you aren’t left shorthanded.
If you are a low income earner, there are schemes, benefits and incentives available so you don’t have to rely on borrowing. If you need whitegoods, car repairs or furniture you can access the No Interest Loan Scheme. Government Benefits through Centrelink can also help you manage your bill repayments through Centrepay. Look into all the assistance available to you to help you keep your finances on track after your Bankruptcy discharge.
Financial strife after Bankruptcy Discharge
If you do fall into financial difficulty after a bankruptcy discharge, the debt relief solutions on offer are very limited. You may be able to speak to a free financial counsellor about budgeting your way out of debt, but if you can’t afford your repayments the only other option is to declare Bankruptcy again. There is no limit on the amount of times you can declare bankruptcy, however each time you apply your case is assessed by AFSA (the Australian Financial Security Authority). AFSA may reject your application if they find you capable of making repayments.