Bankruptcy Myths Debunked

Bankruptcy Myths Debunked

Written by Caitlin Wood
Last Updated June 2, 2021

The Canadian (and worldwide) economy has not been in top shape for quite a few years now. Many individuals and families are struggling financially, and trying to figure out what their options are. For some people with financial problems, declaring bankruptcy is the best way to deal with those problems. However, many people are hesitant to declare bankruptcy because of the myths that persist about the process. Some myths about bankruptcy include:

  1. It will be common knowledge that you’ve filed for bankruptcy. Generally speaking, no one will know you filed for bankruptcy unless you choose to share that information. It costs money to search public records, and most people won’t want to spend the money on the off chance of finding something out about you. Also, notices in the newspaper are usually only posted for large bankruptcy cases.
  2. You will lose all your assets and be homeless. If you file for bankruptcy, you will have to liquidate some of your assets to pay your creditors. However, most places allow you to keep certain assets including locked-in pensions, RRSPs or RRIFs, a certain amount of home equity, cars, and pets. Research the laws in your jurisdiction to find out for certain what assets you will be able to keep.
  3. The process is easy and free. Filing for bankruptcy is actually not easy, and it isn’t free either. The whole process can take up to 21 months, and during that time you will have to attend credit counseling, file reports about your finances, and allow a bankruptcy trustee to handle your finances. And, the whole process usually costs around $1500. Filing for bankruptcy isn’t a decision to take lightly.
  4. Your credit rating will be ruined forever. It is true that bankruptcy will affect your credit. If you file for bankruptcy, it will be on your credit report for all to see. However, evidence of bankruptcy won’t remain on your credit report forever. After 6 years, it will drop off the report and creditors will no longer be able to see that you filed for bankruptcy. At that point, you will be able to get a secured credit card and a car loan and start rebuilding your credit.
  5. Filing for bankruptcy will affect your spouses credit. Many people think filing for bankruptcy will ruin your spouses credit, but filing for bankruptcy is something you do as an individual. So, it will only affect your spouse if your spouse has co-signed with you on a loan. But, your spouses individual accounts and credit rating won’t be affected in any way.
  6. If you file for bankruptcy, all your debts go away. It seems like if you file for bankruptcy, all your debts should go away. But that actually isn’t the case. When you file for bankruptcy, you’ll still be responsible for things like alimony, child support, and student debt.

Filing for bankruptcy is a long and serious process, but if you are considering doing so, at least go into it with all the information. Forget about common bankruptcy myths, and research information about filing for bankruptcy in your area.

Also, don’t forget that lenders love lending cash to individuals who have been discharged from bankruptcy because of the reduce debt burden that these individuals have. For more information on that, visit this page. Also, don’t forget the credit rebuilding qualities that come with a loan!

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Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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