Should I File for Bankruptcy?
Personal bankruptcy is a legal process that provides an individual with an opportunity to eliminate most (if not all) of their debts and get a “fresh start” to rebuild their financial life. The decision to file for bankruptcy is an individual one. Every financial situation is different. If you are struggling with debt and are unable to pay your debts as they become due, bankruptcy may be an option for you. However, before you make the decision to file, it makes sense to consider the advantages and disadvantages of filing bankruptcy for your unique situation.
Speaking with a licensed insolvency trustee can help you understand the options available to you. Most trustees offer this initial consultation at no charge. The consultation will provide you with details on the possible options, which may include bankruptcy. It is then up to you to decide what you feel are the advantages and disadvantages of filing bankruptcy are for you.
While many people are aware of the general concept of bankruptcy, they are unfamiliar with the details. In addition, many myths exist about bankruptcy. In some cases, creditors and collection agencies have been known to spread false information about bankruptcy in order to discourage people from filing.
Here are some important bankruptcy facts to consider when you are thinking about the advantages and disadvantages of filing bankruptcy:
You do not lose everything
Many people believe that you lose all of your assets and everything you own when you file for bankruptcy. This is not true. Certain assets that are considered necessary to live a basic lifestyle are exempt. If you have other assets of value i.e. a house with equity in it, you may be able to keep these assets subject to certain conditions to be arranged with your trustee
An announcement of your bankruptcy will not be placed in the newspaper
Unless you are a well-known public figure, there will be no newspaper coverage when you file for bankruptcy. Larger bankruptcies may be listed in the paper as “legal notices” but the vast majority of personal bankruptcies are not. Your creditors will be notified by mail.
Bankruptcy affects more people than you think
Approximately eight per cent of non-retired Canadians between the ages of 45 and 64 have gone through bankruptcy at least once in their lives, according to Statistics Canada.
Potential Disadvantages of Filing Bankruptcy
As mentioned, bankruptcy is a personal situation and different people may consider different aspects of the process to be advantages or disadvantages. However, here are some additional bankruptcy facts that could potentially be considered disadvantages.
Bankruptcy does not eliminate all debts
Bankruptcy only includes unsecured debts such as credit cards, personal loans and unsecured lines of credit. It does not include secured loans such as mortgages or car loans. Bankruptcy does also not eliminate spousal and child support payments. Student loans can only be included in a bankruptcy if you have been out of school for more than seven years.
Bankruptcy is noted on your credit report
When you file for bankruptcy, this is noted on your credit report. This note remains for seven years after you have been discharged from bankruptcy, if it is your first bankruptcy. After this point, you will need to rebuild your credit rating by following good credit habits. Many consider this one of the main disadvantages of filing bankruptcy. However, it’s important to consider your financial situation and what will happen if you do not file for bankruptcy when thinking about this fact. You may continue to make minimal payments on your credit cards only to find a year later that you are deeper in debt
If you are in a position where filing for bankruptcy makes sense for you, you have likely already done damage to your credit rating by missing bill payments or paying bills late. If you choose not to file for bankruptcy, you may end up overwhelmed by debt and hurt your credit rating even more. Bankruptcy allows you to put yourself in a position to rebuild your credit rating once you have been discharged.
There is a cost to bankruptcy
While bankruptcy eliminates many of your debts, there is a cost to filing for bankruptcy. There is a basic fee to be paid to the trustee for administering your bankruptcy process. If you have assets that can be sold for the benefit of your creditors, the proceeds from these sales will go towards this fee. If you have “surplus income”, a portion of this may be payable to your creditors and this amount is a function of your income and dependents in your household
As you can see, there are a number of factors that determine whether or not you should file for bankruptcy. A free consultation with an insolvency trustee can help you understand the facts and make an informed choice for your financial future. The potential advantages and disadvantages of filing bankruptcy will help you make this choice.