4 Common Myths: The Truth About Declaring Personal Bankruptcy in Ontario
4 More Common Bankruptcy Myths Debunked
There are many bankruptcy myths out there that can cause many people to become worried or paranoid when they realize bankruptcy might be their only option. However, these myths are commonly untrue.
Declaring personal bankruptcy in Ontario can feel overwhelming. Speaking to a licensed insolvency trustee will ease the process and make it much more understandable.
Here are some more common bankruptcy myths that are simply not true.
Myth # 1. My credit rating will be ruined forever if I declare bankruptcy
If you are already behind in paying your bills and collection agencies are calling, chances are that your credit rating is already badly affected.
In Ontario, any creditor who does a credit search will see details of the bankruptcy on your credit bureau report for seven years after your bankruptcy discharge date if you are a first time bankrupt. If it is your second bankruptcy or more, bankruptcy details will remain noted on your credit bureau for 14 years after your bankruptcy discharge date.
Given a first time bankruptcy scenario, seven years after your discharge, there will be nothing noted on the credit bureau about the bankruptcy. Even during that seven year period, discharged bankrupts can take steps to rebuild their credit rating.
Some people worry that if they file for bankruptcy it will affect their spouse’s credit rating. A consumer bankruptcy filing is personal to the individual filing it. As long as your spouse didn’t guarantee or co-sign for your credit cards or loans, his or her credit rating will not be affected by your filing. Creditors cannot go after your spouse for debts that are only in your name.
Myth #2. Filing bankruptcy is only for people who are not financially responsible
There are various reasons why a person may need to declare bankruptcy. These reasons include: relationship breakdown, loss of job or pay reduction, health-related issues, etc.
People can find themselves faced with difficult financial situations No one can predict the financial crises that can occur in life. Even with the best planning, there can unexpected turns.
Talk to one of our licensed insolvency trustees today to discuss your options.
Myth # 3. Bankruptcy is the Only Option When Finances go bad
When someone is beginning to realize they are running into financial trouble, bankruptcy can often seem like the only solution.
There are some alternatives that one can consider before they decide to file for personal bankruptcy. Here is a brief summary of these options.
- Debt consolidation: This option involves the process of consolidating all debts the individual currently owes into one payment. It is done through the bank or other financial institution, who will agree to pay off the debts the individual owes in return for a monthly payment to that institution.
- Financial planning and budgeting: If the individual has a source of income, they may be able to avoid bankruptcy with proper financial planning and budgeting.
- Consumer Proposal: A consumer proposal option is available to most individuals. With proposals governed by the Bankruptcy and Insolvency Act, the debtor works with a licensed insolvency trustee to prepare an offer to the creditors to pay off a percentage of the debt owed over a certain time frame. With a consumer proposal, payments are made to the trustee, who will then distribute the funds to the creditors.
A licensed insolvency trustee is available to help debtors analyze their finances and determine the best option for their personal situation.
Myth # 4. Bankruptcy Can Clear all Debts
Many people believe that declaring bankruptcy is as simple as clearing all debts and starting over with a fresh financial slate. While bankruptcy is a solution for many individuals, it depends on the type of debt they owe.
It is important to note that not all debts can be cleared by declaring bankruptcy.
Bankruptcy primarily works to resolve unsecured debts. These types of debts include credit card debt, personal loans, and lines of credit.
However, the following are examples of unsecured debts that are not discharged when filing an assignment in bankruptcy:
- Any fine or penalty or restitution order imposed by a court
- Child support or spousal support (alimony)
- Any debt related to fraud
- Any student loans where the date of bankruptcy occurred within 7 years after the date on which the bankrupt ceased to be a full or part time student.
Secured debts are also not included in bankruptcy as the lender has taken security against the debtor’s assets to protect their debt against default. These debts include vehicle loans and mortgages.
Should the individual wish to include the secured debt in the bankruptcy they must be prepared to give up the asset held as security by the lender. The asset will be sold and any shortfall on the sale will be included in the bankruptcy.
Finally, declaring bankruptcy on joint debts will affect the joint debtor. For example, if one person (from the joint debt) declares bankruptcy, the other person will still be required to make payments on any amount left owing.
Talk to a Licensed Insolvency Trustee at Crawford, Smith & Swallow
Crawford, Smith & Swallow has been serving the Niagara community for over 70 years, helping clients with the right debt solutions. Our expert trustees are available to help those with overbearing debt problems gain back control of their lives to begin a new chapter.