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Bankruptcy: the best option?

May 25, 2017

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Bankruptcy can be a scary word when you’re facing financial difficulties. People often associate this term with fear, uncertainty and shame. However, when taken care of by a Licensed Insolvency Trustee, bankruptcy doesn’t have to be scary or shameful, and can provide you and your family a way to deal with your financial woes.

Personal Bankruptcy

While we don’t recommend bankruptcy for everyone, the idea behind it is to permit an honest person in an unfortunate situation the option to eliminate their debts and focus on building a brighter financial future. In our line of work, we often deal with people who have encountered financial difficulty as a result of divorce, loss of a job, failed business venture, serious illness or even a family emergency.

With that in mind, we have put together a list of the common misconceptions we hear about with regards to bankruptcy:

I will lose all my assets

In British Columbia, provincial legislation allows a person to keep assets when they file for bankruptcy, including:

  • Household furniture up to $4,000
  • Clothing and medical equipment
  • A vehicle up to $5,000 (restrictions apply)
  • Equity in a principal residence up to $12,000 (restrictions apply)
  • Tools used to earn a living up to $10,000

Other legislation allows you to keep your pension and RRSPs (except those contributions made in the previous 12 months).

My friends and family will find out

A legal notice advising the bankruptcy filing to alert potential creditors is only done in larger bankruptcies, including corporations. Although bankruptcy filings are a matter of public record, a fee must be paid to search for names. It is also uncommon that your friends and family would know about this search. It is likely that unless you tell your friends and family about your bankruptcy, they won’t find out.

My credit will be ruined forever

Are you behind on payments to your creditors? Are collection agencies calling you? Are you unable to pay your creditors in full? If you answered yes to any of the questions above, your credit rating is probably already in poor shape.If this is the first time you’ve filed for bankruptcy, it will be noted on your credit report for six years from the date you are discharged. Discharge dates can vary, but can be done in as little as nine months. In comparison, a consumer proposal is noted on your credit for three years from the date you complete your payments. Keep in mind, payment completion times can be up to five years, which means your credit is impacted for a total of eight years.

I will never get credit again

First time bankrupts are eligible to be discharged either nine or twenty-one months from the date of filing. Once discharged, you are free to apply for credit and start rebuilding your credit rating. This often means starting off with a secured or guaranteed credit card whereby you need to pay a security deposit in order for the financial institution to extend credit.After two years, the Canada Mortgage and Housing Corporation will insure a mortgage as long as you have a sufficient down payment.You can obtain financing for a vehicle, however it may mean paying a higher interest rate.

My spouse’s credit rating will be affected

Your bankruptcy will not get noted on your spouse’s credit report. Unless your spouse has co-signed or guaranteed your credit card or loan, they are in no way responsible for your debt. If they have guaranteed or co-signed your credit card or loan, and only you file bankruptcy, your spouse will be responsible to pay that debt. Their credit will only be affected if they do not make appropriate arrangements with that creditor to repay the debt.

If you’re still unsure of your options, or would like to learn more about bankruptcy, contact one of our qualified Licensed Insolvency Trustees.

Rest assured there is life after bankruptcy. Come in for your free consultation and let one of our licensed professionals explain your options.

 

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