Bankruptcy Myths

Filing for personal bankruptcy still has a bad name and in discussion we think of irresponsible people who were reckless with their finances and money.

Although there are people like this the majority of people who find themselves facing bankruptcy and financial issues are people who suffered a set back in their life like divorce, loss of job, illness or disability and even the death of a loved one.

You do not lose everything.

Assets such as tools of the trade, personal clothing, your home and your car (if the value is under 6,000 dollars) you are allowed to keep.

Locked in pensions and RRSPs are kept except for contributions made the year prior to the bankruptcy.

Anything that is considered of value the trustee must liquidate or “get the value for”  meaning if you have an asset you’d like to keep you can pay the value for it to the trustee to hold on to it.

Even assets that are taken can be bought back in bankruptcy.

As an example, say you owned an item that the bankruptcy trustee says must be surrendered.  The trustee would then place a value on the item, and you are allowed to buy that item back from the trustee.

No one will know unless you tell them.

Although personal bankruptcies used to be broadcast in the past, in today’s world the newspapers are not interested in your bankruptcy and we do not see “creditor notices” for bankruptcies.

You do however see commercial bankruptcies for large businesses still being advertised.  Although bankruptcies are a matter of public record, no such posting is usually made.

If you file for bankruptcy there is a good chance that most people will not even know or ever find out.

Yes a bankruptcy is going to affect your credit rating,

The bankruptcy will affect your credit rating, but your credit rating is probably already bad and going through a bankruptcy is the first step to improving it.

Bankruptcies stay on your credit file for six years and you can be discharged from bankruptcy within nine months.  Most people realize that they have to do something about their finances and although the credit rating is affected, the positive benefits to working to fix your finances far outweighs the negative affects of a bad credit rating for a few years.

Bankruptcy erases most debts but some may remain.

All unsecured debts are erased but secured debts like mortgages, spousal and child support. Taxes and fines owed to the government in most cases are not erased.

Student loans that are less than seven years old are not erased.

Read more on what you keep in keep in bankruptcy >

There is a cost to filing for bankruptcy.

There is a cost to filing for bankruptcy but it will be less than what you are making now in payments.

When you file for bankruptcy it will cost you about 1600-1800 dollars in Ontario.  This is for the trustee to file the bankruptcy, deal with the creditors, liquidate the bankrupt’s assets and provide counselling sessions.

You will be required to attend the counselling sessions and make monthly reports of your finances to the the trustee.

The cost is usually spread over 9 months and is about $200 per month.

Yes you will qualify for credit, but not right away.

If you’ve thinking about filing for bankruptcy probably you don’t qualify for any more credit and your credit is probably maxed out.

While the bankruptcy is on your credit rating and creditors will be able to see it and probably refuse you credit, which considering the issues that brought you to bankruptcy, reduced availability to credit may not be a bad thing.

After the bankruptcy discharge (usually within 9 months) most people can get a secured credit card and even a car loan.  During the six years the bankruptcy is on your credit rating but you will still be able to have some access to credit as most businesses will still want your business.

Filing for bankruptcy only affects the individual that files.

The credit rating of spouses or common-in-law relationships or otherwise will not be affected as long as they did not co-sign or guarantee the loan.

As well the bankruptcy would only apply to the person filing, and any spouse would still be responsible for the debts in their name.

Filing for bankruptcy is a big step

Yes, when you file for bankruptcy it is a big step, but it’s the first step to solving your financial and debt issues and yes will take some effort and work from you.

During the time it takes to discharge your bankruptcy you will have to:

• surrender all credit cards
• hand over control of your finances to the insolvency trustee
• make a monthly report of income and living expenses
• attend two credit counselling sessions
• report any borrowing to the trustee
• submit all pay stubs

Although going through a bankruptcy is strong process, for many people dealing with a trustee can be the first time for a financial education.

Many find the process the mechanism that gets them back on track and much happier in the long run.

Give us a call today to learn more at 905-721-7506.