Filing for bankruptcy can feel like a daunting decision, with numerous queries and worries surrounding it. One of such concerns is How Bankruptcy Will Affect Your Career. In this article, we will demystify this topic, shedding light on the potential impacts of bankruptcy on your professional life, and exploring alternatives like Consumer Proposals that can serve as less invasive solutions for debt relief.
Understanding Bankruptcy: A Brief Overview
Bankruptcy is essentially a legal status for people unable to repay their debts. It is governed by a federal law, the Bankruptcy and Insolvency Act (BIA), aimed to assist Canadians under severe financial strain. The process is overseen by Licensed Insolvency Trustees (LITs), the only professionals authorized to assist in such cases.
The Downsides of Declaring Bankruptcy
Declaring bankruptcy comes with significant consequences that should be carefully considered.
Asset Surrender
The act of declaring bankruptcy requires the debtor to assign their assets to the LIT. The LIT then takes possession of these assets (except those protected by law from seizure), sells them, and uses the funds to pay off creditors.
Credit Rating Impact
Bankruptcy results in the lowest possible credit rating. In Ontario, a first-time bankruptcy stays on your credit record for six to seven years post-discharge, depending on the credit bureau. Multiple bankruptcies can reflect on your credit rating for 14 years following discharge. However, over time, you can work towards rebuilding a good credit rating.
Spousal Implications
If your spouse has guaranteed or co-signed your debts, their liability for the debt doesn’t get discharged with your bankruptcy. They remain responsible for the debt, which could lead to a consideration of joint bankruptcy if neither of you can pay off the debts.
The Impact of Bankruptcy on Employment
The question of How Bankruptcy Will Affect Your Career is indeed a pertinent one. The BIA protects employees from being fired, suspended, or disciplined due to bankruptcy. Most often, your current employer doesn’t need to know about your bankruptcy unless your wages are being garnished. In such cases, the LIT must inform your payroll department to stop the garnishment.
However, certain professional roles like accountants, lawyers, mutual fund license holders, and real estate brokers may require you to disclose your bankruptcy status. Also, many employers now run credit checks during the hiring process, and bankruptcy can affect your prospects.
Consumer Proposal: An Alternative to Bankruptcy
A Consumer Proposal presents a less invasive alternative to bankruptcy. It is a legally binding agreement between the debtor and the creditors, where creditors agree to forgive a part of the debt, and the debtor agrees to pay off the remaining balance in affordable installments.
Lesser Impact on Career
Consumer Proposals are typically less detrimental to your career. Unless your employer is one of your creditors or your wages are being garnished, it’s unlikely they will discover your Consumer Proposal. However, the same rules apply for professional designations and licenses as in bankruptcy.
Asset Retention
Unlike bankruptcy, in a Consumer Proposal, the debtor’s assets do not vest with the LIT. Most debtors are allowed to retain all or most of their assets.
Lesser Impact on Credit Rating
Your credit rating is still affected when filing a Consumer Proposal, but it stays on your record for three years from the completion date, which is often shorter than the duration for bankruptcy.
Whether you choose bankruptcy or a Consumer Proposal, working with an LIT is essential. Baker Tilly Ottawa Ltd., a Licensed Insolvency Trustee based in Ottawa, has helped thousands of individuals and couples resolve their debt challenges since 2002.
Before making a decision, consider How Bankruptcy Will Affect Your Career and explore all possible alternatives. It’s crucial to take control of your financial health and make informed decisions.
