5 Reasons Not to Declare Bankruptcy

Exploring the Downside: When Declaring Bankruptcy Might Not Be For You

Often, when individuals are grappling with overwhelming debt, they contemplate the idea of declaring bankruptcy. It may seem like the only way out, a fresh start, a clean slate. However, this financial manoeuvre is not always the ideal solution. Bankruptcy is accompanied by a multitude of negative implications that can persist for years and significantly impact various aspects of your life. This article will delve into the 5 reasons not to declare bankruptcy and why it should not be your initial go-to solution for debt relief.

1. The Devastating Impact on Credit Score

Declaring bankruptcy is synonymous with declaring a financial catastrophe. It is a declaration that you were unable to manage your debts, which severely tarnishes your credit score and rating. This damage lasts for a considerable duration, typically six to seven years, sometimes even longer, depending on the specific circumstances surrounding the bankruptcy.

Bankruptcy appearing on your credit report makes it extremely challenging to secure new loans, credit cards, and other credit products with reasonable interest rates. It creates a barrier if you’re planning to get a mortgage for a new house, rent a property or pass credit checks for new employment. Even after years, potential creditors may view you as a high-risk applicant, affecting your chances of securing loans in the future.

2. All Debts Are Not Wiped Clean

A widespread misconception about bankruptcy is that it erases all your debts. However, this is far from the truth. While declaring bankruptcy does deal with unsecured debts like credit cards, unsecured lines of credit, payday loans, and unpaid bills, it does not extend to secured debts such as mortgages or car loans.

Furthermore, certain types of loans like recent student loans (less than 7 years from when you stopped studying), alimony and child support payments, court-imposed fines or debts related to fraud remain unaffected by bankruptcy. Hence, depending on your debt type, declaring bankruptcy may not completely resolve your financial problems.

3. Risk to Your Assets

Declaring bankruptcy is not a simple process. It involves meeting with a Licensed Insolvency Trustee who assesses your income, assets, and debt to determine if you’re a suitable candidate for bankruptcy. If you proceed with the bankruptcy, you run the risk of losing valuable assets.

Most consumers end up losing their Registered Education Savings Plans (RESPs) and tax refunds as the Trustee liquidates assets to pay off the debt. Contributions made to the Registered Retirement Savings Plan (RRSP) within the past 12 months and most of the equity in your home may also be at risk.

4. There Are Better Alternatives

One of the essential reasons not to declare bankruptcy is that there are other viable alternatives that can help you manage your debt without causing as much damage to your credit rating and financial health. These lesser-known options include debt management programs, debt consolidation, debt settlements, and consumer proposals.

It’s advisable to have a confidential meeting with a professional Credit Counsellor who can guide you regarding these avenues. They can evaluate your financial situation, answer your questions, and help you choose the best option for your needs.

5. The Cost and Time Involved

The bankruptcy process is not only costly but also time-consuming. The fees for your Trustee are approximately $1,800, and there are other administrative charges and additional payments to creditors based on your income level. These fees cover the Trustee’s work, court costs, and filing fees.

The bankruptcy process usually lasts between nine and 21 months (for a first bankruptcy), starting from when you file for bankruptcy to when you obtain your discharge. During this period, you need to report your income monthly to your Trustee, attend credit counseling appointments, and provide income tax information and other requested details to comply with the process.

Seeking Expert Advice

Understanding the implications of bankruptcy is critical as it’s a major life decision. Therefore, it’s well worth your time to consult with a Credit Counsellor who can help you determine if it’s the best option for you. These professionals can provide you with free, confidential bankruptcy information and guide you through your financial situation, helping you make a decision that benefits you and your family in the long run.

How to Contact BankruptcyCanada

You can easily reach out to BankruptcyCanada via phone, email, or an online chat. The appointments are free, confidential, and you can consult with a licensed professional in person or over the phone. This initial meeting is a judgment-free zone, and you are not obligated to take any further action.


While bankruptcy might seem like an attractive option to wipe out your debts, consider the long-term repercussions and explore other alternatives. It’s crucial to make a decision that is suitable for your situation and serves your best interests in the long run.

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