Unraveling the Seven Bankruptcy Myths and Facts in Canada
Bankruptcy, a term often associated with financial distress, is frequently misunderstood, especially in Canada. Many misconceptions revolve around the bankruptcy process, its implications, and alternatives. To clear the fog, let’s dive into the 7 common bankruptcy myths and facts in Canada.
Myth 1: Bankruptcy – An Easy Escape Route
“Bankruptcy is not as easy as it seems; it leaves a long-lasting impact.”
The misconception that declaring bankruptcy is a simple solution to financial woes is far from the truth. Bankruptcy does not magically repair your credit; instead, it leaves a mark on your credit report for over six years, making it challenging to secure credit. Besides, the emotional toll of bankruptcy, with feelings of guilt and regret, can linger for a prolonged period.
Myth 2: Bankruptcy – Accessible to All
“Bankruptcy is not a one-size-fits-all solution.”
The belief that bankruptcy is available to everyone is misleading. The costs and fees associated with declaring bankruptcy make it an unsuitable option for some. Depending on your income level and owned assets, bankruptcy can prove to be an expensive way to resolve financial issues.
Myth 3: The Sole Solution for Financial Crises
“Bankruptcy is not the only option available during a financial crisis.”
Many assume that bankruptcy is the only way out when finances worsen. However, several alternatives to bankruptcy exist, including debt management Programs, orderly payment of debt, informal consumer settlement proposals, formal consumer proposals, refinancing your home, and debt consolidation options. The best solution depends on an individual’s specific circumstances.
Myth 4: Bankruptcy Covers All Debts
“Not all debts can be included in a bankruptcy.”
Contrary to popular belief, there are debts that are not covered under bankruptcy. Secured debts, such as mortgages or car loans, cannot be included in bankruptcy. Student loans are generally excluded if it’s been less than seven years since one ceased being a student, ensuring fair access to the student loan system. Moreover, declaring bankruptcy on joint debts can affect the other borrower.
Myth 5: Bankruptcy Leads to Total Loss
“Bankruptcy does not mean you lose everything.”
Bankruptcy doesn’t strip you of all possessions. Most provinces allow you to retain basic necessities such as clothing, essential household furniture, medical and health equipment within specified limits. Certain provinces also permit keeping a modest vehicle and your house, given they do not possess substantial equity. Tools required for your profession are also exempted up to a certain amount.
Myth 6: Only the Impoverished Opt for Bankruptcy
“Bankruptcy does not discriminate based on wealth.”
Financial problems can affect anyone, regardless of income levels. The common myth that only low-income individuals resort to bankruptcy is incorrect. Often, higher income earners also carry substantial debt. Bankruptcy is a legal avenue available to anyone who is insolvent, i.e., unable to meet their financial obligations.
Myth 7: Misuse of Credit Cards Prior to Bankruptcy
“Maxing out credit cards before filing for bankruptcy can lead to serious repercussions.”
The practice of frivolously spending on credit cards before declaring bankruptcy can jeopardize your relationship with a bankruptcy trustee. Creditors may also oppose your bankruptcy discharge, leaving you in a difficult situation.
Decide If Bankruptcy Is Right for You
“Bankruptcy is one of many financial solutions.”
Canadian bankruptcy laws aim to lend legal protection to those experiencing severe financial hardship, providing a chance for a fresh start. However, bankruptcy should always be viewed as the last resort. It is crucial to explore all your options and their implications to decide the best course of action.
Contact Us for More Information About Bankruptcy
If you need more information about bankruptcy in Canada and are unsure if it’s suitable for you, please contact us.
