Why Avoid Bankruptcy ??
It may seem like nobody should need a reason to avoid bankruptcy, but compared to constant calls from creditors or the humiliation of having a perpetually empty wallet, bankruptcy can start to look less intimidating. If you are thinking about declaring bankruptcy, give yourself enough time to make sure that you are informed!
Bankruptcy Will Not Clear All of Your Debt
The first misconception about bankruptcy is that it will clear all of your debts. This is untrue. Secured debts, which include student loans, car loans and mortgages, cannot be included in your bankruptcy claim. Nor can bankruptcy wipe out debts related to child support or alimony payments. Keep in mind that your bankruptcy claim also has to be approved and vetted by a trustee in bankruptcy before you can proceed. If you have incurred large debt that is fairly recent, it may look suspicious, as if you never intended to pay the debts back. This would cause your application for bankruptcy to be rejected.
The Cost of Bankruptcy
Ironically, in order to even consider bankruptcy, you have to make sure you have the funds to pay for it. Declaring bankruptcy involves working with a trustee in bankruptcy who will charge a fee for their services. Also a portion of your income will be taken each month to pay your creditors. If you are already having money trouble, this can be a serious hurdle. It takes an investment of money as well as resources and time to organize a declaration of bankruptcy. You will not necessarily lose all of your assets as certain exemptions apply to your home, vehicle, household items and business equipment.
Six Year Financial Stigma
Bankruptcy remains as a part of your financial record for at least six years after discharge for a first time bankrupt, regardless of the status of your debts. You should be prepared with a plan to help re-build your credit after bankruptcy as you will now find it much more difficult to qualify for loans or credit of any kind. This might be a blessing in disguise, as this kind of thing might have been the source of your troubles in the first place.
Restructure Your Debt Instead
Bankruptcy is a serious matter and should only be an action of last resort. Debt restructuring through a Consumer Proposal is often a more viable option and does not carry the same social stigma as bankruptcy. A consumer proposal is where a portion of your debt is usually forgiven by your creditors and the balance may be paid interest free over a period of up to 5 years. When a consumer proposal is filed all your assets are protected from your creditors, interest stops and no legal action may be taken against you. This way you will not carry the stigma of bankruptcy and your credit may be rebuilt faster if you pay off the proposal quicker.
Bankruptcy is a big step to take and should be taken seriously. You should research all your options before proceeding preferably with the assistance of a debt relief specialist. In some cases bankruptcy is your only viable option in which case you should proceed as soon as possible to gain relief from creditor harassment and interest payments.
About the Author
Peter Temple is the Burnaby, Debt Relief Specialists helping Canadians overcome debt and money problems by offering debt restructuring, credit rebuilding and budgeting services.
References
Credit Counselling Society: “Find Out If Personal Bankruptcy in Canada is Right for You.” Retrieved from
“7 Bankruptcy Myths, Misconceptions & Facts in Canada – Be Informed and Make Smart Choices.” Retrieved from
