House, car, and groceries—almost everything today can be bought through credit.
With the availability of credit cards, buying almost anything with no real money to pay for your purchase has become a common trend. While there’s nothing wrong with paying with credit, most people don’t realize that it’s a double-edged sword until they’re already burdened by unmanageable debt.
For people who are in deep financial trouble, filing for bankruptcy can be a way to regain financial control.
Bankruptcy works this way: A person in debt files a bankruptcy with a Licensed Insolvency Trustee who then notifies creditors that they cannot pay their debts. The creditors must then deal directly with the trustee. Despite its obvious benefits, the misconceptions about bankruptcy have made people apprehensive about it. Below are the myths versus the facts about the claiming of bankruptcy.
BANKRUPTCY MISCONCEPTION #1: YOU’LL LOSE EVERYTHING YOU OWN
Remember that creditors have a right to get back at least some of the money you owe to them, so it’s true that you may lose some of your assets. However, you won’t lose everything. Some assets, such as furniture, personal effects, a car up to a certain value, and locked-in pensions, are protected from liquidation. The assets you are allowed to keep will depend on which province or territory you’re residing in. Not only that, even if an asset isn’t exempt from seizure, you can still keep it by paying its value in your bankruptcy over a period of time.
BANKRUPTCY MISCONCEPTION #2: BANKRUPTCY WILL BE IN YOUR CREDIT RECORDS FOREVER
Bankruptcy notations do last for quite a while in someone’s credit file, but it doesn’t last forever. Legally, if it’s your first filing, it will remain in the debtor’s credit history for as long as six seven years after you’re discharged. If you’ve been bankrupt before, it may stay there for as long as 14 years.
To put it in context, almost every debt management program will appear in your records. A consumer proposal arrangement, for instance, will remain on file for at least three years after the completion of the proposal.
BANKRUPTCY MISCONCEPTION #3: EVERYONE WILL KNOW THAT YOU FILED FOR BANKRUPTCY
If you check the legal notices section of the newspaper, you’ll see ads alerting potential creditors about someone’s bankruptcy. However, this only happens for large-scale bankruptcies. In most cases, only the creditors are notified of a bankruptcy by mail.
BANKRUPTCY MISCONCEPTION #4: BANKRUPTCY ERASES ALL YOUR DEBTS
Filing for bankruptcy does eliminate debt, but you have to remember that it doesn’t erase all of them. Debts like alimony, child support or traffic tickets support are not removed.
Student loan debts are slightly different; unless you’ve been out of school for seven years, your student debts will not be discharged. You can however make a special application to have your student loan discharged once you’ve been out of school for five years.
ABOUT THE AUTHOR
Kelly Dey is a licensed Licensed Insolvency Trustee throughout Ontario.
As a Licensed Insolvency Trustee, she is licensed and regulated by the Superintendent of Bankruptcy to administer proposals and bankruptcies. She continues to actively consult and provide guidance to those seeking to file a bankruptcy or consumer proposal in Ontario.
Yanch Dey & Associates Ltd. offers a wide range of bankruptcy and debt management services in the GTA, Durham Region and County of Northumberland.