How does bankruptcy affect getting a credit card?

Filing for bankruptcy can make it difficult to get the credit card you want.

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Bankruptcy can have long-term effects on your credit score and can make it harder to obtain credit cards and other loans. But it’s possible to get a credit card post-bankruptcy if you work on improving your credit over time.

Read on to learn more about what bankruptcy is and how it affects your ability to get future credit cards.

What is bankruptcy?

Bankruptcy is the process of legally declaring that you can’t repay your debts. You will have to essentially assign everything to a licensed insolvency trustee. A licensed insolvency trustee is the only professional who can deal with bankruptcy in Canada. They are regulated federally by the government, which makes the cost of bankruptcy more reasonable – yes, bankruptcy will cost you.

The goal of bankruptcy is a discharge, or an order from a court known as a stay of proceedings, that disallows a garnishment from your wage or eligible creditors from attempting to collect on outstanding debt. Bankruptcy is designed to be fair to both creditors and the debtor (you).

Who can file for bankruptcy?

To be “insolvent”, you’ll need to:

  • Owe at least $1,000.
  • Be unable to meet your debts as they are due to be paid.

What’s covered by bankruptcy?

  • Unsecured debts. Most unsecured debts including credit card debt, personal loans, unpaid income taxes and overdrafts.

What is not covered by bankruptcy?

  • Any secured debt. Bankruptcy typically only applies to unsecured debt, so any secured loans, car loans, mortgages or secured credit cards you have may not be included. For these debts, lenders or creditors may choose to seize and sell the collateral securing these debts to satisfy any balance – any shortcomings will be dealt with in the bankruptcy.
  • Student loans. Student loans of less than seven years after you stopped going to school are not discharged in bankruptcy.
  • Priority debts. Child support, alimony and other priority debts are not discharged in bankruptcy, as well as any debts arising from fraud.

How is my credit affected after bankruptcy?

Bankruptcy can severely damage your credit history. It affects everyone’s credit score differently, but will likely take more than 200 points off of your credit score.

While your first bankruptcy stays on your credit report for six to seven years, a second bankruptcy will stay on your report for 14 years.

Getting a credit card during bankruptcy

Don’t apply for credit cards or use your existing credit cards shortly before filing for bankruptcy. Your credit card provider can say that this credit use had “dishonest intent”, and may result in your credit card debt not being discharged.

Your existing credit cards may be closed during the bankruptcy process even if they’re fully paid off.

Can I get a credit card after bankruptcy?

You can get a credit card after bankruptcy, but you’ll find that you have very limited options. It can be hard to find a credit card provider that will approve you with a bankruptcy still on your credit report – many providers automatically reject applications that disclose bankruptcy.

One option that you may consider applying for is a secured credit card. A secured card can help you rebuild your credit score after bankruptcy in a few different ways.

  • These credit cards are designed to help rebuild your credit and require an upfront cash deposit that typically becomes your card’s monthly credit limit. Otherwise, these cards work in the same way that your typical credit card does.
  • Look for a provider that reports responsible spending and on-time payments to the two credit bureaus, Equifax and TransUnion, which can help improve your credit score.
  • Use your secured card to improve your credit score by keeping your credit utilization ratio below 30%. Your ratio is calculated by taking the balance of your card and dividing it by your credit limit.
  • Some banks and providers offer an opportunity to convert your secured card to an unsecured card after you’ve proven you can manage credit. In this case, your deposit is returned to you once you pay off your balance in full.

After your bankruptcy falls off of your credit report, it should be easier to find approval for unsecured credit cards. If you open a credit card – whether secured or unsecured – be sure to practice good spending habits.

Compare secured credit cards for building credit

Refresh Financial Secured Credit Card

Refresh Financial Secured Credit Card

With this secured credit card, you can look forward to building up your credit score by making on-time payments. While it has an annual and monthly fee, this secured card does not require a credit check and comes with a competitive purchase APR of 17.99%.

Home Trust Secured No Fee Visa

Home Trust offers a secured visa card that allows you to choose the best option for your needs: choose a no annual fee card that comes with a purchase rate of 19.99% APR, or choose a lower purchase rate of 14.90% with an annual fee of $59 (or the option to pay $5 per month).

Compare unsecured credit cards for rebuilding credit

Right after bankruptcy, you likely won’t be approved for an unsecured credit card. However, after using a secured card for one to two years and paying your bills on time, your credit score may be high enough to get approved for an unsecured card.

Unsecured credit cards don’t require a security deposit and generally come with higher credit limits than secured cards. Make sure to keep up with payments and pay your unsecured card in full each month so you can keep building positive credit history.

After your credit score has improved with a secured card, try applying for one of these unsecured credit cards:

No-Fee Scotiabank Value Visa Card

No-Fee Scotiabank Value Visa Card
With no annual fees, low interest rates and a low credit limit, the Scotiabank Value No-Fee Visa Card offers reasonable features that can help you get back into the unsecured credit card market.
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RBC Visa Classic Low Rate Card

With a low annual fee and low interest rates, you can look forward to tackling your credit card bill and building up your credit score each month.

Bottom line

Filing for bankruptcy is a serious decision that should not to be taken lightly, as it can make qualifying and effectively utilizing credit cards – and any type of credit for that matter – incredibly difficult.

While bankruptcy might seem like the end of the road, you still have a few options.

Compare some of the best secured credit card options and spend responsibly to rebuild your credit score so that you can eventually graduate to a better credit card.

Frequently asked questions

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