6 Common Myths About Filing A Bankruptcy

Are you experiencing serious financial issues but hesitant to meet with a Licensed Insolvency Trustee? Your reluctance is normal and completely understandable — especially if you've turned to the internet for answers about Bankruptcy, only to find confusing or outdated misconceptions.  

Bankruptcy isn't right for everyone. But part of a trustee's job is to dispel the myths and arm you with the information you need to decide whether it's right for you.

Waiting too long to get financial help can hurt your finances even more. And no matter which path you take toward your financial fresh start, we want to make sure you take your first step knowing the truth about the Bankruptcy process.

Bankruptcy Will Ruin My Credit

In most cases, by the time someone is considering a Bankruptcy, their credit is already in rough shape. If you've missed minimum payments, exceeded your credit limits or are behind on cell phone or utility bills, these all report negatively to the credit bureaus.

However, filing a Bankruptcy may stop the ongoing negative reporting. Your debts will, in effect, be put on hold until they are officially discharged upon the Bankruptcy's completion.

It is true that an R9 rating — which is the worst rating — will be reported on these debts as soon as you file a Bankruptcy. It will remain there for the entirety of the Bankruptcy and for six years thereafter. With that said, the process of rebuilding credit can begin as soon as your discharge is complete.

Bankruptcy Will Prevent Me from Getting A Job

Job applications rarely ask whether you're bankrupt. And if a potential employer doesn't ask, you likely have no obligation to disclose this information.

Certain professional standards of conduct require you to disclose whether you are currently bankrupt or have been in the past. These often include lawyers, accountants and insurance and investment brokers.  If you are required to act in a fiduciary capacity (e.g. handling monies or trust accounts) your ability to conduct these duties may be limited until your discharge from Bankruptcy.

Review your company handbook or talk with human resources to learn how a Bankruptcy could affect your employment. Depending on your findings, a Consumer Proposal could be a viable option without the same consequences.

Additionally, Licensed Insolvency Trustees do not have to inform your employer that you've filed a Bankruptcy. Only in such cases where your wages are being garnished by a creditor, will we inform your employer or payroll department of your Bankruptcy — and only so your wages are no longer garnished. 

I'll be in Bankruptcy for Seven Years

The seven-year myth likely stems from people confusing the length of a Bankruptcy with the length of time a Bankruptcy stays on a credit report. A first Bankruptcy remains on your credit report from the day you file the Bankruptcy until six years from your discharge date. This increases to fourteen years for any subsequent bankruptcies.

The duration someone actually stays in Bankruptcy ranges from nine months to three years in most cases.

People may also associate the seven-year timeframe with what they may have heard about filing Bankruptcy in the United States. This is a much different process. If you're doing research online, always ensure the information is relevant to Canada.

Bankruptcy is Free

Licensed Insolvency Trustees are regulated by the Office of the Superintendent of Bankruptcy. Although this is a government agency, the services provided by trustees are not government funded. The funds paid to the Bankruptcy estate cover filing fees, counselling, taxes and the amount the Trustee is legislated to accept for doing the work. 

The fees associated with filing a Bankruptcy vary. The minimum amount for a first-time Bankruptcy is $1,800, payable over the term of the Bankruptcy. More money may be payable depending on asset values, income and the number of previously filed Bankruptcies.

No, a Bankruptcy is not free to file. However, the amount you pay over the course of the Bankruptcy is usually a fraction of what you owe.

I'll Lose Everything in Bankruptcy

We often hear people claim they know someone who lost their house or their car because of a Bankruptcy. And this may be true… for that person. But it may not be true for everyone else. Bankruptcy legislation applies to everyone — however, there are varying degrees of how it applies in each situation.

Every province sets limits around what assets a bankrupt person can keep up to a certain value. These  are called exempt assets. When there is no value in the assets above the set limits, the bankrupt can keep those assets. When there is value in assets over the exemption limit, the bankrupt person may decide to "buy back" the asset by paying the excess value above the set limit. When they cannot afford to do this, the Trustee will liquidate the asset.

If asset values are a concern for you, we highly recommend you speak with a Licensed Insolvency Trustee. You can also discuss Bankruptcy alternatives if you have several assets above the exemption amounts that you wish to keep.

Anyone Can File for Bankruptcy

You must be insolvent under the terms of the Bankruptcy and Insolvency Act of Canada to file a Bankruptcy. To determine whether someone is insolvent, we look at several criteria:

• Is the person a Canadian citizen and do they reside or carry on business in Canada?
• Does the person owe more than $1,000?
• Can the person meet their monthly obligations as they become due?
• Is the value of the person's assets less than the debt owed?  

Answering 'yes' to one of the above does not automatically make you insolvent. For instance, you may have difficulty paying your monthly obligations due to cash flow issues, yet own a property worth more than the debt owed. A Free Confidential Consultation with a Licensed Insolvency Trustee is the best way to determine whether you qualify for a Bankruptcy.  

Financial Freedom

Struggling with unmanageable debt, harassing creditors and the threat of collections action is scary. Bankruptcy doesn't have to be. If you're having trouble making ends meet, consider scheduling a Free Confidential Consultation with a Licensed Insolvency Trustee Today.

During this no-obligation initial meeting, they will review your entire financial situation, ask questions about your challenges and goals and identify opportunities to achieve the financial fresh start you deserve. As government-regulated service providers, Licensed Insolvency Trustees don't deal in rumours or conjecture — they will only provide you with factual, reputable and legally binding information.

More importantly, whether you qualify for Bankruptcy, a Consumer Proposal or would benefit more from one of several other options, they will ensure you have all the information you need to make the best choice to defeat your debt now and to enjoy a sustainable, manageable long-term financial future.