Bankruptcy is your chance to restart your financial success. Many people are nervous about declaring bankruptcy, worried about how it will affect their lives. But just as many reported feeling a deep sense of relief after they’ve spoken to a bankruptcy trustee, now known as a Licensed Insolvency Trustee in Ontario. Going through insolvency, whether it’s through bankruptcy or a consumer proposal, is an opportunity to get your financial life back on track.
First, you will have to settle your debts. When you’re insolvent, it means you don’t have the income or the assets to settle unsecured debts. Bankruptcy and consumer proposals are agreements to settle a reasonable amount, either through selling assets or cash payments. But what happens when you’re done? It’s time to get yourself back on track to success.
#1 What Are Your Financial Goals?
Now that you can see the path out of insolvency, what are your long-term financial goals? Is it buying a house, buying a car, saving for retirement, or just going on one long vacation to celebrate your new financial freedom? They will all take saving and smart planning to achieve. Find out how much money you will need for a down payment on a house or a car, or how much cash you need to travel.
#2 Make a Budget
Now that you know what you want to do and how much it will cost, you can make a budget that will help you save for it. Be honest with yourself when you’re calculating necessary expenses. Remember to give yourself room to replace clothing and unexpected expenses. Create different savings funds or cash envelopes for different purposes, i.e., set aside this much money in a month for surprise car repairs and this much money each month for your main savings goals. Having money set aside will protect you from surprise expenses sending you back into debt.
#3 Rebuild Your Credit
One of the things bankruptcy trustees like David Sklar & Associates will teach you in credit counseling is how to rebuild your credit. Paying in cash is a great way to control your spending, but you will also want to rebuild your credit. When you’re in a consumer proposal or bankruptcy, you may want to get a secured credit card. It functions like a credit card, but you make a deposit as collateral on your account. You need to use credit to rebuild your credit rating.
Before you declare bankruptcy, you want to consider a bankruptcy vs consumer proposal and what it looks like to recover from insolvency that way. In a consumer proposal, you repay your debt in fixed monthly payments for up to five years, but your assets are untouched. It’s often recommended to individuals with assets such as significant equity in their homes, vehicles, second properties, non-RRSP investments, jewelry, or valuable artwork. A consumer proposal may take longer, but when it’s over, all your assets will remain intact.