There are many myths about bankruptcy which can make people afraid of filing but if you are an honest debtor in an overwhelmingly bad financial situation, you must take steps to resolve it before the situation gets even worse. Bankruptcy may be the cheapest and quickest way to solve your financial problems.
However, if you are considering filing for bankruptcy, you should educate yourself. Some of the so-called scary facts about bankruptcy are not facts at all, but are myths. Other facts also have another side.
Bankruptcy is the only solution: false
Bankruptcy is not the only solution to a personal financial crisis. Filing for personal bankruptcy is just one option—the final option—for resolving extreme personal financial difficulties. You must discuss other options with a licensed bankruptcy trustee, and this trustee will advise you on all your options.
Other options include a debt consolidation loan; working out a debt management plan after credit counselling; and a consumer proposal to your creditors. Your bankruptcy trustee can assist in making this proposal, and will prepare the paperwork.
Not all your debts are discharged: true
It is true that not all your debts are discharged even if you file for personal bankruptcy. Bankruptcy will discharge your unsecured debts, like outstanding bills and credit card bills. However, here are a few unsecured debts that cannot be discharged (such as Child Support Payments) but a trustee can help you identify these issues before you make a decision on your course of action.
Bankruptcy does not discharge secured debt. Mortgages are secured debts, and your lender has the option to repossess if you default on your loan.
You will lose all your assets: false
You must surrender your assets to your trustee, who will deal with your creditors and discharge your debts – but you do not lose all your assets. You keep essential assets, which will enable you to rebuild your finances. These assets include the tools of your trade, clothing and furniture, and some personal items, some investments, and even a motor vehicle.
You will never restore your credit: false
Your credit rating will already be damaged if you have mounting debts you are unable to pay. A bankruptcy means your debt will stop mounting, and you will be able to begin restoring your credit rating. The record of your bankruptcy will be kept on your credit rating for up to 7 years (in Ontario), but you will probably be able to obtain credit in about 2 years.
If it is your first bankruptcy, you may be discharged after 9 months. However, you can start restoring your credit even earlier by making all payments on time. Continue to pay all bills by their due date, and your credit score will improve.
Source used in researching this document include the Government of Canada: Bankruptcy and Insolvency at Glance.