Obscure Facts about Bankruptcy
The term “bankruptcy” is not synonymous with simply losing all of your money and assets. It also doesn’t mean all of your debts are cleared, or that you will lose your house and furniture. There are also many other options available to deal with crippling debt other than declaring bankruptcy. The finer details of bankruptcy are more obscure, and some of the real facts may surprise you.
Myth: Bankruptcy means you lose everything; the car, the house, the stereo, virtually everything you own.
Fact: The goal of bankruptcy protection is not to break you financially, but empower you to pay your debts back and restore your financial well-being. You do not lose all of your assets when you declare bankruptcy. Under the bankruptcy act you retain certain essentials so you can continue to live and work with a minimum amount of hardship.
Myth: Declaring bankruptcy is an easy way to clear all of your debts.
Fact: Declaring bankruptcy will not necessarily clear all of your debts. Only your unsecured debts are cleared. These include credit card debts, tax debts, personal loans, utility bills etc. Secured debts such as car loans and mortgages are not included in a bankruptcy and will survive as will child support arrears and student loans less than 7 years old.
Myth: Bankruptcy means that you will no longer have to make any monthly payments on your debts.
Fact: It is common to continue making payments to your bankruptcy trustee (who will forward monies to creditors) after declaring bankruptcy. This occurs if you have what is called “surplus income” When you declare bankruptcy, you are given a guideline for what you and your family need to earn to support yourselves, and anything above that limit is considered as surplus income. If you have surplus income a portion of it must be paid to your creditors and can extend the period you are in bankruptcy.
Myth: Declaring bankruptcy is your only option if you have unmanageable debt
Fact: There are several other options to help you solve your financial problems that do not involve bankruptcy. A consumer proposal, for example, is an offer to pay a portion of your debts instead of filing for bankruptcy and all your assets in this case would be protected. You do not have to report your monthly income like in a bankruptcy, nor liquidate any of your assets. There also isn’t any obligation to submit “surplus income” payments on what you owe if your financial situation improves.
Declaring bankruptcy can be a long and complicated process, and the stereotypes and misconceptions surrounding it aren’t helpful. Don’t rely on gossip, stereotypes or even the internet when making important decisions about your financial future. Every situation is very different and you need to look at a plan that best suits your individual needs Thankfully, there are resources and professional consultants available to dispel the myths and explain the facts.
About the Author
Gurinder Dhaliwal is the Burnaby, Debt Relief Specialists helping Canadians overcome debt and money problems by offering debt restructuring, credit rebuilding and budgeting services. Call him at 778-340-4002.
