Over 100,000 Canadians file for consumer proposals or bankruptcy each year, which shows that the number of people facing financial struggles is high. Bankruptcy is very common since it is the only solution for most people and organizations that cannot pay back loans. Filing for it is an official admission of inability to pay debts. However, it should only be taken as a final resort when every other option has failed. Reasons you may find yourself going bankrupt include:

  • Loss of income
  • Mismanagement of funds
  • Medical expenses
  • Natural disasters qualifying as emergencies
  • Separation and divorce

Bankruptcy status may provide some relief for creditors, but it also has some disadvantages. The main one is that it reduces your credit score because it cannot be erased from your credit report for a long time. Until you rebuild your score, which will take time, potential lenders will perceive you as a high-risk borrower.

You can still get a loan even with bankruptcy, especially when you opt for private mortgage Toronto lenders. You could refinance your mortgage if you managed to keep it after filing for bankruptcy. The other alternative is to try and improve your credit score before applying for an unsecured loan.

Refinancing your mortgage after bankruptcy can provide the financing you desperately need and even help pay off the debt. However, you must factor in all the possible ways the decision is likely to affect your ability to get a loan in the future.

Effects on credit scores

Bankruptcy reduces credit scores tremendously, and it remains that way for at least 6 years. A second bankruptcy takes at least 14 years. Getting a loan during that period will be impossible because lenders will doubt your creditworthiness, but you can still take measures to improve the score.

Start by paying off all the loans that were not cleared in the bankruptcy. Next, apply for a secured credit card, which means you will need some funds for the deposit. You will then have to use the credit card responsibly to prove that you can control your finances better. Using it to pay for consumables only is a good option since it allows you to use it frequently without delaying payments. Never use more than 75% of the credit limit and never skip on the minimum payment.

With time, you can start applying for other small loans and if self-employed, try Registered Retirement Savings Plan loans. They will help you save some cash as you rebuild your credit score.

Chances of approval

Before applying for credit, do research and determine your chances of getting approved. Confirm that you are eligible because the application will reflect on your credit report and reduce your score for a short duration.

Confirm the policy that the private mortgage lender is using for applicants who have filed for bankruptcy. Talk to a mortgage broker or a few employees to determine your eligibility status before the application. You will get more insight regarding your chances of being approved and ascertain whether the reflection on the credit report will be worth it.

Summary

Bankruptcy may give immediate reprieve when you are facing serious financial distress, but it can also have long-lasting repercussions that prevent you from accessing loans when you need them. If you take the above steps and pay your loans on time, your score will gradually improve, allowing you to access loans and refinance your mortgage once again.

You can also talk to private mortgage lenders in Toronto to get more information on how your situation can change and whether refinancing a mortgage is a good idea.