The Top 10 Reasons Not To Go Bankrupt
There are plenty of reasons not to go bankrupt but as a consumer quite often you are not advised of all of your options and not clearly informed of the implications of bankruptcy. Today I will outline the top 10 reasons to avoid filing for bankruptcy. Now keep in mind there are often times when bankruptcy is the best route to go to resolve your debt, but you need to be fully informed by someone looking out for your best interests before making that decision. You can go directly to a bankruptcy trustee to handle a bankruptcy but remember they are the officer of the court and looking out for the best interests of your creditors. Seek out a professional that will look out for your best interests such as a 4 Pillars consultant to help you determine the best avenue for your debt re-structuring solution. This can be a life-changing decision so make an informed decision!
- A Consumer Proposal may be a much more viable option. Make sure you understand how a Consumer Proposal works and that you talk to your 4 Pillars consultant to understand the benefits and how to get the best possible settlement in a Consumer Proposal.
- Understand the “surplus income” calculation. If you make more than the Superintendent’s Standards for income you will have monthly “surplus” payments to make. These can vary and if the income rises during the bankruptcy so will your cost of going bankrupt. So yes, there is a cost to go bankrupt it is not free. There is also an asset calculation, see reason #3.
- Do you own a home? There are strict guidelines on how much equity you can have in your home when you go bankrupt. If you have more equity than the allowable amount you have to pay that equity to the estate for distribution to the creditors. If you cannot pay that amount you will either have to re-finance your home or sell it in which case you would not keep any of the proceeds. There has also been a recent ruling in Ontario that if your home increases in value during the period of the bankruptcy you would be required to pay that equity to the estate as well. With home values rising at the rates they are this is a very serious consideration.
- Other assets. Did you know that certain investments are NOT exempt in a bankruptcy? So if you have been contributing to an RRSP in the 12 months prior to filing bankruptcy you would have to surrender those contributions for distribution to the creditors. Do you have an RESP for your kids’ education? That is a non-exempt asset and would also have to be surrendered. The same applies for other assets such as motorcycles, ATV’s, snowmobiles, boats, a second unencumbered vehicle, etc.
- Once bankrupt you are ALWAYS a prior bankrupt. Despite the fact that the bankruptcy eventually comes off the credit bureau it is recorded as public record indefinitely. Why do they do this? If you go bankrupt a second time there are different rules making it more costly and MUCH more severe on your credit bureau, showing for at least 16 years. The Office of the Superintendent of Bankruptcy keeps records of all bankruptcies so they will know if it is your first or second (hopefully not a third or more) bankruptcy.
- Looking for a job? Many employers now check the credit rating of potential employees. They feel that this can be a representation of character. Not a fair interpretation in my opinion but that’s what they do. A bankruptcy is the most severe thing you can do to your credit bureau and it could be problematic if you are looking for a job.
- Emotional considerations. There is a certain stigma associated with going bankrupt and as such it must be taken into consideration. Are you prepared to be a “former bankrupt” for the rest of your life? Certain generations have a real issue with this and others not so much. Make sure you (and your spouse) take this into consideration prior to going bankrupt.
- Discharge issues. Unfortunately simply going bankrupt does not mean you are free and clear of all of your debts. If you do not fulfill the terms of your bankruptcy you can have “an opposition to discharge” against you by either your trustee and/or creditors. What this means is that you are required to go to court to see if you can be discharged from your bankruptcy. At the discharge hearing it will be determined whether you still owe money to the estate (Trustee) and if so, what time frame you will be given to pay the outstanding funds. If the shortfall arises from assets (such as your house) you could be forced to sell the home to satisfy the order. In addition this is also an opportunity to have creditors appear in court and make their argument of why they believe you should have to pay them more than what was originally expected. If they make a compelling argument (think CRA) your cost of bankruptcy could rise drastically and you could be facing months or even years of additional payments.
- When you go bankrupt you cannot be bonded. As such this could have an impact on your current employment or future employment. Some employers have a strict rule due to the nature of the job that their employees cannot go bankrupt and if they do they will lose their job. Obviously if you are applying for a job that requires you to be bonded you will not be eligible for the position.
- The unknown. As prepared as you think you may be for a bankruptcy it can have radical implications to the unknown. As mentioned above, a drastic rise in your home value during bankruptcy creates expensive implications. A windfall from an inheritance or even a lottery winning becomes an asset of the estate and goes to the trustee first. Don’t cash in an RRSP’s while you’re bankrupt as again these go directly to the estate first. Counting on that big tax return? Not while you’re bankrupt, that goes to the trustee.
There are so many big and little “what ifs” in a bankruptcy that many people are not informed of prior to filing. If you are unaware of these they could really come back to bite your during the course of bankruptcy, or even at discharge time for that matter. I cannot stress enough how important it is to have someone on your side walk you through your debt re-structuring options prior to making a decision. If a bankruptcy is your best option you still need someone working for you to help minimize the potential for things to go wrong.
About the Author:
Trevor Glasser owns the 4 Pillars Consulting Oshawa, On Office helping people get out of debt every day. If you need a free consultation to understand your options please feel free to contact Trevor at 905-243-8765 or www.goodbyedebt.ca.
