The situations that require people to file for personal bankruptcy are extremely stressful. There are many reasons why people may find themselves in a financial black hole: unemployment, severe illness, and divorce being just three reasons why someone may be unable to repay their creditors.
Sadly, people who can lessen their financial stress by filing for bankruptcy often perceive bankruptcy as a harsh or merciless last option. Some people may put off filing, which makes their financial situation even worse. This is due to the many misconceptions and myths about bankruptcy.
This article will debunk the five main bankruptcy myths.
1) You will lose everything
You will lose most of your assets, because your creditors deserve to get some of their money back. But you won’t lose everything. Some assets are legally protected under the bankruptcy process. RRSPs and RRIFs are often protected, though creditors may be able to access contributions made in the year before filing.
You will also be allowed to keep a basic car, most of the time at no extra cost. If you are currently leasing or financing a car, you have the option to keep your car as long as you are up to date on your payments and able to continue making them.
Protected assets vary from province to province, so you should check with your bankruptcy trustee.
2) People will know
There is often no notice in the paper if your assets are minimal. Bankruptcy filings are a part of public record, but friends, neighbours, and co-workers will probably not find out unless you tell them.
There is nothing to be ashamed of in filing for bankruptcy. If you must file, you are facing up to your insolvency and taking steps to solve it.
3) Your credit rating will be lost forever
Your credit rating is affected by your bankruptcy, but your rating is not lost forever. You are allowed have credit again once your bankruptcy is discharged, this discharge can be as early as nine months after filing.
Your bankruptcy will appear on your credit report for at least six years after you are discharged. But you can take steps to re-establish your credit during this time.
You should be able to qualify for loans and credit cards once your bankruptcy is discharged. Paying credit card bills, even if you have to get a secured card, will be a plus point on your credit record. Paying all bills on time is also crucial.
4) All your debts will be cancelled
Some of your debts are unaffected by filing for bankruptcy. These include secured debts like mortgages or car loans. Also, obligations like alimony and child support must still be met. Court fines and claims are also still due.
5) Your spouse’s credit rating will be destroyed
If your spouse is not a guarantor or co-signatory for your credit cards or loans, your spouse’s credit rating will not be affected by your bankruptcy. Creditors are not permitted to chase your spouse for debts that are solely in your name.
However, this means of course that your spouse must repay all their debts.
Hopefully debunking these myths will leave you better informed. If your best solution is to file for bankruptcy, it is not the end of your (financial) world.