To be discharged from Bankruptcy means that you are released from your obligations to repay all debts that have been included in the Bankruptcy filing. Although this is an important step in eliminating debt, the process is not complete until you receive your discharge.
After you have gone through all of the requirements, your Licensed Insolvency Trustee will issue you a Certificate of Discharge.
What actually happens after you have been discharged from your Bankruptcy? Is there a possibility of getting credit? How do you reestablish your credit score – if in fact you are able to obtain credit.
Licensed Insolvency Trustee, Mary-Ann Marriot answers some of these questions and more. She discusses:
- The different types of Bankruptcy discharges
- Prepaid credit cards versus secured credit cards
- Requirements to obtain a discharge
- Steps to rebuild your credit
- How long Bankruptcy lasts
Speaking with a Licensed Insolvency Trustee ensures that you are getting the best qualified help with your debt. They are the only federally regulated debt advisors in Canada. From budgeting to Bankruptcy, you can be assured you are receiving unbiased advice.
Read the Transcript
Wayne Kay 0:04
Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay. Today we’re going to be talking about what to do after Bankruptcy discharge.
So by the end of this show, you’re going to learn what it means to receive your discharge from Bankruptcy and how that all works, the different types of discharges that are there. We’re going to find out about your credit and what happens to it once you are discharged. Does it automatically get better? We’re going to talk about the credit bureaus and who updates those and importantly, how to reestablish your credit after your Bankruptcy discharge.
To help me out with this today, Mary-Anne Marriot with Allan Marshall and Associates Licensed Insolvency Trustee with office locations in Alberta, New Brunswick, Nova Scotia, and Prince Edward Island.
Thanks for being here, Mary-Ann. Always great. We’re going to dive into a big discussion about what you do after Bankruptcy discharge. So if somebody’s listening for the first time, what does Bankruptcy discharge mean?
Mary Ann Marriott 1:19
Yes, that’s a great question. Because there’s lots of myths, misconceptions around that. Bankruptcy discharge basically means you have completed the Bankruptcy process. And I think that’s important to differentiate because someone goes into Bankruptcy or files an assignment into Bankruptcy, but they’re not actually, it’s not actually complete until they get their discharge.
And so they have to do a number of things in order to get that. Now what that means when you get your certificate of discharge is that it’s at that point that you are legally released from the obligation to pay your debt. So you’re not really legally at least released from your debt until you complete the process and get to that point.
Wayne Kay 2:04
So let’s go back a little bit. So if somebody goes into Bankruptcy, give me the one minute version of the steps pre and then we’re going to dive into the post Bankruptcy.
Mary Ann Marriott 2:16
The steps to file a Bankruptcy mean, believe it or not, the legislation hasn’t changed, since I don’t know 1940, or 50. It’s been a long time. So to quote unquote, to qualify for Bankruptcy, you have to owe $1,000, and be unable to pay your debts as they become due.So that hasn’t been updated, obviously proved very long time.
So that’s kind of the qualifying feature or you’ve committed an act of Bankruptcy, which, again, there’s a number of things, but ultimately, you’ve missed a payment, just to kind of simplify that. And then you make an assignment into Bankruptcy. And you do that with the assistance of a Licensed Insolvency Trustee of which I am one, which basically means we administer those and help people through the process,
Wayne Kay 3:05
Okay, and then there’s work to be done. And that’s what we’re talking about at the end of the work, when you are discharged from your Bankruptcy. And when I see the word discharge, I’m thinking military. You’re discharged from the military, you’ve done your time and you have been discharged. Is that the same thing?
Mary Ann Marriott 3:24
Pretty much, I actually use that as an example, quite often. It’s like being in the military and you’re discharged. So it means you are finished, you have completed that you have done your duty. You have done what you are required to do, and you can now go on and live your life.
And it’s kind of the same thing with Bankruptcy. So you have left the debt behind in some way, shape, or form, and you are now moving forward to continue on your life, with or without credit, depending on which path you go at that point.
Wayne Kay 3:51
With or without credit. So what does that mean?
Mary Ann Marriott 3:55
Well, I guess what I’m saying is that, for some people, I often talk, tongue in cheek, about when you file for Bankruptcy, you’re divorcing your debt. For some people, they actually say I love living without credit. It’s freeing to them. So again, if we use that analogy, it’s like someone who’s been married for a long time and it hasn’t gone well. And they’re divorced, and they’re single, they never really want to get married again. Well, that happens with people who go through Bankruptcy, they just never want to have credit. Again, they don’t want to go there. It wasn’t a good experience.
Wayne Kay 4:28
Right. So they learn new strategies to basically deal with everything in cash.
Mary Ann Marriott 4:34
Yes, even nowadays with debit visas and things like that. There’s so many ways that you can still function in society without going into debt or even using credit in some instances.
Wayne Kay 4:48
Okay. I guess cash for me, I haven’t seen cash for a long time – but debit cards, etc. So what are some of the different types of discharges?
Mary Ann Marriott 4:58
What happens is when you get to the end of your Bankruptcy, there’s a few ways that you can – I’m going to say be released, but I’ll explain. So what most people want is to get what everyone wants to get is, and you might recognize this wording again, is an absolute discharge. So it is exactly as it sounds, it is absolute, it’s definitive, it’s a discharge, you’re finished.
Some years ago, they streamline the process so that somebody could get an automatic discharge. Now automatic is just a glorified absolute discharge. And it just means you don’t have to go to court. Traditionally, you had to go to court to get your discharge from Bankruptcy. But if you are eligible for an automatic discharge, it just means it’s automatically given to you by the Trustee.
Wayne Kay 5:48
And does that happen now – going to the court, or is it more automatic?
Mary Ann Marriott 5:52
Automatics happen a lot. So you got to be a good boy or girl, and you got to do all your stuff, right? So kind of the same set along the same line.There’s a list of things you are required to do, like file some reports, attend some meetings and, pay any costs associated with it and cooperate with the Trustee. You have to do all of those things to be eligible for an automatic. If you don’t do certain of those things, then it ends up going through the court process.
Wayne Kay 6:18
After that point, does your credit automatically improve once you are discharged?
Mary Ann Marriott 6:24
No. And you know what, that is probably one of the biggest misconceptions. I went through Bankruptcy, I’m discharged. And now I don’t have to do anything. And my score will just magically start to get better. And then people don’t do anything. And they find out months, sometimes years later, that’s not true.
Wayne Kay 6:44
When you’re in Bankruptcy, when you’re going through that time, which is what – roughly nine months?
Mary Ann Marriott 6:51
Yeah, it depends on the situation, but anywhere from nine months up to about three years.
Wayne Kay 6:56
And obviously at that point, there’s no way you’re getting any credit for anything. So you get out of the discharge, now you can start rebuilding. So what does that look like? So we don’t have shocking feelings of what do you mean, I don’t have any kind of credit?
Mary Ann Marriott 7:11
Well, I’ll just go back to one thing you said, which is obviously, you’re in Bankruptcy and you can’t get any credit. And that’s actually a myth as well. It’s really not impossible to get credit while you’re in Bankruptcy. And I’ll just explain why. From a lender’s perspective, when you declare Bankruptcy, you’re debt free. If you’re debt free, you’re a better risk for them, because you have no other debt to pay.
So typically, you can get some type of credit, secured loans. A car loan, for example, is really not that difficult to get – credit cards, sometimes your high finance loans. Finance companies like EZ Financial, Fairstone, those places basically, high interest credit is still sometimes possible while you’re in Bankruptcy, although not necessarily recommended. So I just wanted to add that piece.
Wayne Kay 8:03
Okay. Would that not be – absolutely, most definitely not recommended?
Mary Ann Marriott 8:09
Well, that depends. So for example, here’s something I see often: someone is looking at Bankruptcy, they’ve got a big financial mess. One piece of that mess is an upside down car loan. So what I mean by that is they have a $20,000 car, and they owe 40,000 on it. And the payments are $700 a month, I’m just throwing figures out there. But at the end of the day, it’s very debilitating.
Or maybe the engine blew up, and they don’t even have the car anymore. And so in those instances one of the things that we do help people with is they can potentially get out from under that debt. Let that vehicle go, or maybe it’s already gone for some reason and potentially get into another vehicle. Even though it’s a high interest. A high interest for a $20,000 car with a $20,000 loan at a higher interest is still better than a $20,000 car with a $40,000 loan at a decent interest rate.
Wayne Kay 9:04
Okay, I do understand that now. Okay, so let’s dive into that hole. How do you get your credit rebuilt?
Mary Ann Marriott 9:14
The thing is that by declaring Bankruptcy and, forgive my analogy, but basically what’s happened is you’ve stopped the bleeding and that’s how I explain it to people. You’ve got bad debt, it’s being reported. And so your credit rating is bleeding. And by doing some kind of a debt settlement or Bankruptcy, you’re effectively going to stop the bleeding. But you then have to take some steps to repair the damage.
So if you do nothing, then you just have – let’s say your credit score because of all this, is 500. And you know, just to give you a context, scores range from 300 to 900 – 650 to 700 is kind of that mid range. That’s where you need to be. So you’ve gone through Bankruptcy, it’s at 500. If you do nothing, the score is not going to change. So you need to do some certain things in order to get your score to move.
And really honestly, at the end of the day, there’s only one way to get your credit score to move. And that is by using some type of credit. So if you go if you swear yourself off of credit, and I’m not using any credit for anything anymore, which we talked about earlier unfortunately, your credit score is going to stay stuck where it is, and it’s not going to improve. So there’s our system for you. The only way you can get your credit score up is to use some type of credit to do it.
Wayne Kay 10:37
So what’s your advice for people at that point? I guess there’s different credit cards that you can get where you actually make the payments. You could put $500 on the credit card, and then you use that credit card? Is that the best strategy?
Mary Ann Marriott 10:51
Yes, again, it does depend – you’ll kind of learn in our industry that the answer to everything is it depends.
Wayne Kay 10:57
I’m getting that a lot today
Mary Ann Marriott 11:01
So here’s the thing that ultimately whatever you do, they have to report to the credit bureau. And there’s two types of credit. There’s what we’re talking about in re establishing credit. There’s prepaid credit cards, and they’re secured credit cards. So prepaid just think about basically, it’s a glorified debit card or money card. You just put money on it, and you use it, you put money on it, and you use it. You’re just using your money.
Whereas a secured credit card, you’re giving a company a security deposit. So let’s say $300, they’re giving you a credit card with the $300 limit. They just took that 300 deposit away into their account. And as long as you use and pay the card responsibly, at some point, you’re going get it back. And if you don’t use and pay responsibly, they can use that $300 to cover the balance at some point.
So generally speaking, prepaid cards typically don’t report to the credit bureau. However, there are some that they do, it’s just part of their process and part of their systems. Whereas secured credit cards, generally, all of the time, do report to the credit bureau. So you need to make sure whatever you’re doing, they’re going to report it to the credit bureaus.
Wayne Kay 12:13
And who does that? Whose job is that to report to credit bureaus?
Mary Ann Marriott 12:17
The actual creditor or lender itself. For example, secured credit cards, Home Trust visa, Capital One – if you’ve searched secured credit cards online, you’ll get pages, but those are kind of some of the most common ones that are just most known. They tend to be relatively easy to get credit from. And so they would report to the credit bureau.
Wayne Kay 12:41
So using credit is obviously one of the things. Is there any other ways you can reestablish your credit after discharge?
Mary Ann Marriott 12:49
Not really, but sort of. So you pretty much have to use some type of credit. Now, let’s say you declared Bankruptcy and you had a car loan and you kept it. Well, that does help you because you’ve kept this loan through your Bankruptcy, you’re continuing to pay on it. However, you do get more weight for new credit after Bankruptcy. And it’s just something to do with the fact that you’ve proven that you now can use credit responsibly after you’ve gone through this financial bump in the road.
Having said that, there’s various things that impact your credit. One of the things that I caution individuals about is, there’s a very thin line between financial strategy and financial disaster. So you can go out and get a secured credit card and be doing the right thing. But if you rack it up to its balance and make the minimum payments only or miss a payment, well, then you’ve as the saying goes, shot yourself in the foot, or cut off your nose to spite your face. Basically, you’ve done something that now counteracts what you were trying to accomplish. So the other pieces are you need to pay on time, you need to not use more than 30% of the credit that’s available.
You have the two different types of credit revolving and installment. Revolving would be a credit card line of credit, a constantly changing installment would be a loan. Having the two types of credit is going to also enhance your credit score. So really, there is a system to get your score back up.
And this is why it’s so frustrating to see someone who has done nothing, and then all of a sudden, they’re trying to get their score up. And they’re just thinking, Well, I’m going to use credit, but they’re not using it the right way. And it’s really haunting them for a very long time after the fact.
Wayne Kay 14:33
So as you’re doing the credit counseling as part of the discharge. Before you get discharged, you do have to do a couple of counseling sessions. Can you walk us through what that looks like? Because yes, maybe we’ve gotten into a bad situation. Now we want to start with that clean slate and we don’t want to mess it up again. So yes, let’s start there.
Mary Ann Marriott 14:55
There are two mandatory counseling sessions that every person has to do if they file for Bankruptcy. The first one is really meant to make sure everyone at least has a fighting chance of success, that’s my interpretation. But it basically focuses on goals and money management. So we talk about where do you want to go from here? What do you want to do? What do you want to accomplish? What systems do you have in place to do that? Do you have a budget or a spending plan, as we’ve talked about in a previous podcast. What is your plan? You know, do you follow it, what’s working, what’s not working. So basically, we help individuals at least make sure that they do have some type of this spending plan going forward, and some idea of what their goals are, and they’re starting to work towards them. So that happens in the first one.
And in the second one, which is several months later, we check in to see how they’re doing. And then we also talk about reestablishing credit in your credit bureau. And that’s where we go through all of this stuff that we’ve just been talking about. What steps can you take now, recognizing the second counseling session, normally about four months into the process four to five months.
The person might be in Bankruptcy for nine months, they could be in it for two years. It could be there for three years, potentially, it can be longer. There’s quite a gap there, sometimes between the time or giving them information in the time that they’re discharged. So one of the things that we do is we also give a checklist, once they get their certificate of discharge, that clearly outlines everything they need to do in order to repair and reestablish their credit rating.
Wayne Kay 16:35
So when you talk about this certificate, is it physical? When you say certificate, I think it’s the one on my wall.
Mary Ann Marriott 16:42
Yes, I tell people, they should frame it and put it on the wall. But nobody’s going to do that. No, but it really is a certificate. Yeah, it is a legal document that basically says – it’s a certificate of discharge. You have been discharged from Bankruptcy. We do recommend that people keep it, tuck it away. It does get requested by lenders. Sometimes it could be an insurance company. There could be instances where someone will want to see that certificate of discharge, just to make sure that everything’s been completed. So we do recommend that people hang on to it.
Wayne Kay 17:16
Okay, anything else we need to know regarding things we need to do after Bankruptcy discharge?
Mary Ann Marriott 17:22
Well, I think the only thing that I might add, kind of as a closing statement is, really recognizing what led you to the Bankruptcy in the first place, and really making a conscious effort to do things differently. Although there are reasons that people end up in Bankruptcy that have nothing to do with credit. Honestly, most of the time, it’s a lack of planning. So it’s the lack of having that budget or spending plan. And it’s really just kind of falling into that life with credit that’s so easy for all of us to do because credits all around us. It’s hard to get away from it. It’s promoted, it’s talked about, it’s practically pushed upon us. And I’ll be honest with you, even someone going through Bankruptcy is going to have a really hard time avoiding that going forward, depending on where they are in their life, their age, and what they’re going to be faced with.
Wayne Kay 18:16
I think it’s great advice. And of course, they can check it out with a free consultation through Allan Marshall and Associates. I’ll give all the information in just a moment. But first, let me just say, Marianne, it’s always a pleasure. Thank you very much for being on the show.
Mary Ann Marriott 18:30
Absolutely. My pleasure. Thank you.
Wayne Kay 18:33
Well, my guest today Mary-Ann Marriott and you can learn more or schedule a free consultation with Allan Marshall and Associates Licensed Insolvency Trustee. You can go to their website, wecanhelp.ca.
And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course for more information, you can always check out debtmatters.ca And if you do know somebody who needs this information, please feel free to share this podcast with them. Thank you very much for listening.
About Mary-Ann Marriot
Mary-Ann Marriot has been working in the insolvency field for over 25 years. She received her Chartered Insolvency & Restructuring Professional designation in 2005 and her Licensed Insolvency Trustee license in 2014.
Mary-Ann is passionate about helping people become financially literate. She feels honoured to be able to help individuals discover solutions to overwhelming situations and find peace-of-mind in their lives.