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, and after living with bankruptcy for three years, you are now discharged. While this is a fresh start, you may still face challenges when trying to borrow money. This is because your bankruptcy history remains on your credit file for a set period after discharge, and lenders often hesitate without a clear picture of your repayment habits.
During bankruptcy, you likely couldn’t access credit, leaving your credit file idle with little to no recent activity. Unfortunately, this lack of financial history, combined with the bankruptcy record, can make lenders uncertain about your ability to manage money effectively.
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. Rebuilding your credit score to a point where lenders see you as a low-risk borrower will take time, consistent effort, and careful financial planning.
The best way to start rebuilding your credit is by taking small, manageable steps. Consider applying for a small, affordable personal loan that fits comfortably within your budget. Use an online repayment calculator to ensure the repayments are sustainable, and set up a direct debit to make payments on time and in full. Over time, consistent, on-time repayments will begin to improve your credit score, demonstrating reliability to lenders.
After a period of responsible repayment - typically six months or more - you may notice improvements in your credit score. This can make it easier to qualify for larger loans or other forms of credit, provided you continue to manage your finances responsibly.
IMPORTANT: Avoid payday loans, even for small amounts. Payday lenders often charge extremely high interest rates, and these loans can negatively affect your credit profile, even if you make all repayments on time. Instead, consider working with a broker who can help you find a non-conforming lender willing to offer a loan that suits your needs. Payday lenders are easy to identify: they often promise small loans with quick approvals and minimal credit checks. These should be avoided wherever possible.
Be Responsible
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. However, now that 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 should rush into a loan. Instead, carefully evaluate whether the loan is necessary and ensure you can comfortably afford the repayments over its term.
Each bank uses a different formula to determine how much money they will lend you, and sometimes the amount they offer can be overly generous. Using a loan repayment calculator and a budgeting calculator, do your own calculations to determine how much you should borrow compared to how much you can afford.
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Have a Backup Plan
Building a savings buffer is one of the best habits you can develop post-bankruptcy. Even if you weren’t able to save much during bankruptcy, now is the perfect time to start. Having money set aside can help cover forgotten bills, unexpected events, or emergencies without relying on payday loans or other high-interest credit options. Aim to set up a savings account and contribute regularly, even if the amounts are small - it all adds up over time.
In addition to savings, consider life insurance and income protection insurance to safeguard against unexpected financial hardships. These policies can provide crucial support in times of illness, injury, or other emergencies, ensuring you’re not left without options when you need them most.
Get Savvy
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 appliances, 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 number 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.
For more information on Bankruptcy, you can check out our Bankruptcy page here.
