How Does Bankruptcy Impact Your Future?
Bankruptcy is often the most reliable way to help you deal with severe debt.
If you’re facing a difficult financial situation and see no way out of it by budgeting, then filing for bankruptcy is one of the more effective ways to completely eliminate your unsecured debts and start a fresh financial life.
Unfortunately, it’s not the silver bullet that some people make it out to be, resulting in some unrealistic expectations for what a bankruptcy claim can do.
Bankruptcy can only help with unsecured debt
For starters, a bankruptcy claim can only rid you of unsecured debts such as credit cards.
If you have a mortgage or secured car loan, then you won’t be free of those debts and will likely need to show that you can continue paying them in order to keep those assets.
In addition, bankruptcy will force you to give up certain possessions that aren’t essential for your daily life.
In Canada, this is fairly generous and you’ll likely be able to keep your home (if you can keep up with payments), your vehicle (under a certain value) and essentials such as clothing and work-related items.
Anything else that is deemed a luxury will likely be forfeited.
If you still have a source of income (such as from your job or a business) and can stay up-to-date with your mortgage and car loan payments, you’ll be able to keep those assets under certain conditions.
In short, just keep in mind that a bankruptcy doesn’t make you completely immune to every financial responsibility.
Bankruptcy leaves a mark on your credit report
In addition, filing for bankruptcy will leave a negative mark on your credit report that can last up to seven years.
This will make your credit score plummet, locking you out of many forms of financial aid.
It will prevent you from taking out a mortgage, you won’t be able to apply for a personal loan with a good interest rate, and the interest rates for a credit card will be through the roof.
You’ll also need to slowly build up your credit rating again once this seven-year period has concluded.
While it can be shortened in some circumstances, this isn’t common and you’ll need to wait the entire period before lenders can offer you better interest rates and offers.
In short, bankruptcy is an effective way to get out of severe debt, but it also locks you out of many financial options for up to seven years.
This makes it incredibly difficult for you to rebuild your financial health until the period is up, limiting many of your options.
If you’d like to learn more about bankruptcy in Canada, don’t hesitate to contact us today.
We’d be happy to discuss alternatives to bankruptcy or help you through the process of claiming bankruptcy.