Bankruptcy: The once-dreaded “B Word” is one that people used to whisper under their breath rather than speak aloud. In the past, bankruptcy was often thought of as something only people without jobs or homes filed; people who were so destitute they had totally run out of options.
Welcome to the 21st Century. Things have changed due to a seismic shift in our economy. The good news is that Bankruptcy no longer carries the stigma it once did, especially in this new world of consumer spending. Financial guru, best-selling author and television personality, Gail Vaz-Oxlade, was even quoted this week about bankruptcy in the National Post as saying “It’s the thing you have to do to get back to right.” And she could not be more correct. Even so, despite overwhelming evidence from the media, the government (the Office of the Superintendent of Bankruptcy), Licensed Insolvency Trustees and even former bankrupts, stating the reality of bankruptcy as a viable, affordable and stress-reducing solution for many Canadians, the majority of us still shun it. The reason? We fear being labeled “bankrupt” for the rest of our lives. What we don’t take into account are the benefits of eliminating our debts and starting afresh far outweigh any negative consequences associated with the bankruptcy process. It truly is a financial fresh start.
Too much credit – what should I do?
Today we can access all sorts of easily-available credit. In fact, our digital world now requires we have credit in order to book a flight, stay at a hotel, or purchase goods over the Internet. Access to available credit is a “must” for anyone living in our society. That old rule stating “cash is king” is no longer a valid one. The new rule is “credit is king”, and credit reigns. Unfortunately, it’s also pushing many of us over the financial brink.
How did we get all of this credit?
Primarily, this happened because we’ve been able to take advantage of super-low interest rates, and the ability to choose from a plethora of lenders (who are all aggressively competing for our business) pushing lines of credit, credit cards, department store cards, and other types of credit at us. Often we’re given more credit than we ask for (or need), and many of us see our lenders bumping up our credit limits regularly.
For the average Canadian, the use of credit probably began with one simple credit card (often given to us while at University). Then a few more, plus the addition of a convenient line of credit. Over many years, we’ve managed to amass a sizable roster of accessible credit, and may have used much of it to purchase goods and services. We then go from paying off the balance in full each month, to carrying some of our debt on our cards to paying off part of one card – and then using that credit to pay off part of another card. During this time, our debt grows in size. Then one day we wake up to the fact that our debt load is sky-high and not resolvable without assistance. That’s called insolvency. When someone is insolvent, they need to find a solution, and fast. And one of the best solutions for being insolvent, aside from a Consumer Proposal, is to file for bankruptcy protection from our creditors.
Bankruptcy declared by many Canadians during 2012
A recent article in the National Post newspaper indicated that 71,495 Canadian consumers declared bankruptcy during 2012. That’s down slightly (around an 8% drop over the previous year), but still a sizable number of folks who hit a financial wall and needed help with their debt issues.
Andy Fisher, a Licensed Insolvency Trustee with A. Farber & Partners Inc. (our firm) said, in a recent interview with the Financial Post, that “the fear of bankruptcy is largely based on misconception.” He recounted stories of people saddled with major debt choosing alternative solutions, such as unregulated debt consultants, rather than seeing a Licensed Insolvency Trustee (who is licensed by the Federal Government and who must operate under the strict legislation dictated by the Bankruptcy & Insolvency Act), out of fear. There is a lot of misunderstanding and ignorance out there that people don’t understand how everything works,” stated Andy in the article. “We’ll have people come in and say ‘there’s no way I’m going bankrupt.’ We sit down and talk to them about their options and the pros and cons and in some cases those people realize it’s the best option.” One common misconception people have about filing for bankruptcy protection from their creditors, is the length of time they must live without credit. Many believe they have to wait up to seven years for the opportunity to apply for new credit. But the seven-year rule only applies to when your old debts that appeared on your bankruptcy filing are removed from your credit report. A normal bankruptcy period can be anywhere from 9-months to 21-months, and after receiving a discharge letter from the Licensed Insolvency Trustee, the formerly-bankrupt person can immediately apply for fresh credit. Normally, this fresh credit is in the form of a secured credit card (you put down a small deposit to “secure” the card – the lender gives you an equal amount of larger amount of credit to use) to begin with. After a year or so, it’s possible to either upgrade your existing card to a non-secured credit card, or apply to another institution for a regular credit card. That means you could be credit-capable again less than a year after first filing for bankruptcy protection. Two institutions with excellent secured credit cards are Home Trust and Capital One. Both offer the convenience of a regular credit card and monthly credit bureau reporting, which helps rebuild credit quickly.
Your Licensed Insolvency Trustee is here to help you
If you feel you’re trying to tread water in a financial ocean of debt, the best place to begin your journey to a fresh start is with our web site. By exploring our new Debt Education Centre, you can learn which options are available to you – and then instantly set up a free consultation at one of our more than 50 offices. In a free, no-obligation, one-hour consultation, our financial experts will show you exactly what tailor-made options are available for your needs, to help you rid yourself of your debt once and for all.