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Credit Cards for Bankrupts

March 28, 2019

You read the headline correctly “credit cards for bankrupts” are now available.  Section 199 of the Bankruptcy & insolvency Act allows bankrupts to obtain loans or other forms of credit without disclosing to the lender that they are a bankrupt, with the proviso that the amount of credit applied for is less than $1,000.

If the amount of credit being applied for exceeds $1,000 the bankrupt is required to advise the lender that s/he is a bankrupt.  The fact of being a bankrupt may or may not impact the lender’s decision, but chances are they already know, even without the bankrupt’s disclosure.

Some credit card companies actively pursue high risk clients and have programs that help them re-establish credit following a bankruptcy of proposal filing.  This is not intended to be an endorsement, but we have seen an increasing number of clients successfully obtain Capital One and Canadian Tire credit cards even before their discharge from bankruptcy or completion of their proposal.

Tepperman’s Furniture Store (local to Southwestern Ontario) is another company that actively engages high risk clients in their own “credit rebuilding” program.  They canvas trustees with literature indicating they will allow former insolvency clients up to $1,500 in furniture financing after they have received their discharge certificate or certificate of full performance.

While it is always handy to have a credit card, just in case, and they can be used to help re-establish credit ratings, they’re also an entry point to future financial problems.  We don’t ever recommend using credit, if it can be avoided.  Banks too have programs to help people get into debt, such as Scotia Bank’s “Newcomer’s Program”.  Scotia will lend $5,000 and up to new Canadian immigrants even if they aren’t working.

Scotia Bank is not alone in targeting new immigrants, other banks have similar programmes. With over 300,000 potential new clients now arriving each year the banks can afford to take a few hits from people who can’t afford to pay back. The trade off is the more lucrative immigrant population that gains traction and buys houses and cars.