What are the Pros and Cons of Going Bankrupt?
Filing for bankruptcy is a big decision, so it’s essential to consider the potential benefits and drawbacks before you move forward.
Although bankruptcy can be the most effective way to deal with your debt, it isn’t necessarily the right choice for everyone.
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The Pros of Bankruptcy
Majority of debt is eliminated
The process of bankruptcy ensures that the majority of your debt, or all of it, while be eliminated permanently.
For most people, this is the major benefit associated with filing for bankruptcy.
Although some debts, such as court fines or child support, do survive bankruptcy, the vast majority of your arrears will be cleared once your bankruptcy is discharged.
Creditor harassment stops
When you’re in debt, you’re subject to almost constant contact from your creditors and their agents.
This can be extremely frustrating and demoralising, particularly if you’re genuinely trying to resolve the situation.
Once you’ve filed for bankruptcy, however, these attempts at contact will come to an end and you’ll no longer need to worry about letters arriving in the mail or voicemails being left on your phone.
Instead, you can move forward and begin to focus on your future.
Wage garnishments come to an end
Prior to filing for bankruptcy, a portion of your wages may be taken and diverted to your creditors every month.
Of course, this effectively reduces your income and means you have less to live on each month.
Following bankruptcy, however, the vast majority of wage garnishments stop, which means you’ll keep more of what you earn.
You can rebuild your credit rating
In Canada, a bankruptcy remains on your credit file for at least 7 years.
During this time, however, you can begin to rebuild your credit rating and prepare for a better financial future.
Having a set date upon which your bankruptcy will be discharged gives you the motivation you need to keep making positive changes to your financial management.
The Cons of Bankruptcy
You may lose some assets
When you file for bankruptcy, your assets will be assessed as either exempt or non-exempt.
Assets which are non-exempt could be seized, so you could lose them permanently.
For example, you may lose any tax refund that you’re owed or RESPs.
However, there are ways to keep potentially non-exempt assets, so this shouldn’t necessarily prevent you from moving forward with a decision to declare yourself bankrupt.
Your credit rating will be affected
Bankruptcy does have a damaging impact on your credit file.
However, years of bad debt also has an extremely harmful effect on your credit rating.
Although bankruptcy will be listed on your credit report, it won’t be on there forever.
In just a few short years, your bankruptcy can be removed from your credit file, the majority of your debts will be eliminated, and you will have already started to rebuild your credit rating.
You have extra obligations to fulfil
As part of the bankruptcy process, you may be required to undertake new duties.
These often include learning how to manage your finances more responsibly or reporting your monthly income.
Although these can take up a little of your time, most people actually find these aspects of bankruptcy to be extremely helpful.
With the potential to help you avoid bad debt in the future, these obligations can actually be seen as a benefit, rather than a drawback.
There are costs involved
Although there are costs involved in filing for bankruptcy, they typically depend on your income.
This means you won’t be expected to pay more than you can reasonably afford.
While an administrative fee is usually applicable, this one-off payment shouldn’t detract from the advantages bankruptcy offers.
Should You File for Bankruptcy?
Bankruptcy can be a great option when you have bad debt but it’s important to access personalized advice before you make a final decision.
Now you know the pros and cons of Canadian bankruptcy, you’ll have a better idea of whether it could be a viable option for you.
To find out more, why not speak to a trustee in confidence today?
At Bankruptcy Canada, we can help you to find out more about bankruptcy and other debt relief services and help you to find a suitable solution to your financial problems.
To learn more, call us now on (877) 879-4770.
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