We didn't want to declare bankruptcy and I honestly thought that there could have been a better way. The big banks though really don't want to deal with it constructively and generally just send it off to a collections agency and let them be the bad guys. I can't see how that was to their advantage but suffice it to say, we couldn't get a remotely workable offer from them. Long term biting the bullet and getting everything settled was probably our best course of action. How we got to that point is a whole other story. This isn't about how the wheels fell off though. This is about how we rebuilt.
Putting the wheels in motion
Our first step was to research bankruptcy firms and set up an appointment. We contacted Alan Marshall and Associates and got an appointment with the top man himself. Surprised me since they are one of the largest firms of this type in maritime Canada.
He was helpful in looking at alternatives and reviewing our case. We discussed the costs involved and a basic timetable of how everything would play out. We would keep the family vehicle and had we a home we would have kept that as well. We were making payments on a small piece of property which was an unusual situation. Because the property was not in our name, it would not be affected by the bankruptcy provided we could somehow keep making the payments. There was the home in Ontario which we'd already given up as lost. We could keep it if we could get back there and live in it. That of course under the circumstances was impossible. There were no other major assets in play.
The bad news was that we would both have to declare bankruptcy because everything we did as a couple to that point had been done jointly. That effectively doubled how much we would have to pay the bankruptcy firm monthly (ouch).
After that we had a second meeting, signed all the necessary papers and set up our required counseling sessions. Those were far more dignified than we were expecting. From the start they told us that the fact that we were somehow surviving on our limited income meant there wasn't a whole lot they could teach us.
It was a painful first step and the nine months of payments were exceptionally difficult. We didn't eat very well, but we survived and had plans for moving forward.
At that point I had a huge advantage over other people in the same situation. Our bankruptcy counselor and our bank had recommended getting a secured credit card with Capital One. At the time I was working at a call centre in the applications department for Capital One. Through self study and experience, in some ways I knew more about rebuilding credit than many so called financial advisors.
Ideally we wanted a card with no annual and the smallest security deposit possible. Capital One occasionally offer a card with no annual fee. We prayed that we would receive one of those offers and we did. I could have gotten the offer anyway. I learned that the codes on the offers were not totally unique and several people could use the same offer code to apply for a card (if I still worked for them I could get it trouble for spilling that). I also knew from experience that people who declared bankruptcy once would not be required to pay any deposit at all provided they had not drawn out their financial woes for an extended period of time. We had crashed and burned over a relatively short period of time and we did not end up needing a deposit. We did make sure the credit reporting agencies were updated that our nine month period had been successfully passed. If they aren't updated, you will be asked for a big deposit or even declined. Francine and I both got separate credit cards and both are playing it the same way.
Just getting a credit card doesn't earn you any credit unless you use it. I also knew that if you use it and pay it in full each month you don't build any credit either. I bought a small machine (cheap chopsaw) for my wood shop on the card and paid it off over three months.
I am aware that there is a faster way after talking to a specific customer but we didn't have the financial resources to throw at the problem. This customer went from nine month waiting period completion to excellent credit in one year and I know how he did it. He got a card with Capital One and ran it up close to the limit (never over) every month and before the due date he paid it down to 25 or 30 percent of the balance. I don't know the exact percentage. I'm sure it's out there somewhere. He got another secured card with another company and did the same thing. We didn't have the financial where withal to imitate his success, but we had a solid enough plan.
Upping our game a step at a time
When building credit, two credit products are better than one. I can guess why but beyond that can't really explain. From working with credit card applications on a daily basis, I know it makes a difference.
We got a lucky break. Canadian Tire was running a promotion where you could apply in store. Every time one applies for credit it puts a “hit” on your credit when the bank checks your credit bureau file. Three hits within a short period of time can negatively affect you ability to secure credit. These hits drop off after three months. This opportunity came up outside of that time frame so there were no “hits” waiting in the background. I went and got approved for a card with slightly better terms than the one I already had with Capital One. Now I had my two credit products and I maintained very low usage on both of them. My wife tried to apply for one online from them but was denied. In person when possible does work better.
At this point in time we went through another round of financial body blows. Government housing wanted a ridiculous rent increase based on bonuses I was no longer receiving and I couldn't convince them to relent. That property we had managed to keep through the bankruptcy saved us. We were able to invest in electrical power for the camp and moved there. Gas prices went through the roof but I managed to eventually find work more locally. Finally the family vehicle was on its last legs and needed replacing.
When purchasing a replacement for the family vehicle, I got to sit through the process with a financial adviser. He was shocked at the deal we were approved for. Not only did the vehicle loan get approved but we were offered a preferred rate. He wanted to know how we'd rebuilt our credit on the income we had because this was beyond his experience. I grinned. To get the deal he said our score had to be in the above 800 excellent range.
Keeping it all under control
We were far more indebted at this point than we could be comfortable with. I am debt averse and would rather owe nothing. I didn't want the third product but didn't have much choice in the matter. I need the vehicle to get to work, if nothing else. We still were within our workable plan though and this moment was regarded as a debt peak we hope to never match again.
That fall we paid off our property and the deed was transferred into my name. That brought us modest debt relief. It also added an important asset to our credit file. Owning property outright makes a big difference when it comes to credit. It will open doors for us in the future.
At this point in the game my credit is exceptional with only the black mark of the bankruptcy itself hanging over me. That drops off after seven years and I'm not particularly concerned about it anymore. It is a milestone I'm looking forward to but it isn't earth shatteringly awesome. The hard work is already done. We've gotten credit, we used it, we made payments on time and in full. We just recently paid off my Capital One card and with be canceling it within the month. We aren't financially strong but we're managing and we have solid credit we can work with. I look forward to being debt free but I can't complain about the progress made considering the resources we've had to work with.
I'm not a financial adviser and can't bear responsibility for the decisions of other, but hopefully our experience can be of benefit to those who might have to travel this road. This is not intended to be the last word in how to go about building credit. There is a lot that can go wrong. If you have to, seek out professionals, there are resources out there to help.