There’s a difference between refusing to pay your debt and being unable to pay your debt. In Canada, the Bankruptcy and Insolvency Act (BIA) assumes that the debtor is “innocent,” and filing for bankruptcy is a financial rehabilitative process rather than a punitive one.
Unfortunately, the public still largely misunderstands bankruptcy as a form of debt relief, and assumes that the debtor was wrong and will face serious consequences by taking this course of action. These misconceptions can cause people who are genuinely struggling with debt to continue struggling for longer than they need to, yet the law allows them to get a fresh start.
Consider the following myths and truths:
Myth #1: You will lose your possessions
Truth: Personal effects and household items, including furniture, are exempt in bankruptcy. The only items that would be targeted are those of incredibly high value such as fine art, which you would be required to declare to the creditors on your sworn Statement of Affairs. You can also choose to keep a car that’s valued at $6,600 or less, provided you continue making the payments on it. Your home would be considered an asset that you can sell to repay debt or leverage its equity.
Myth #2: You will go to jail
Truth: You would have to work hard to be incarcerated because of bankruptcy. A Bankruptcy offence would include a transfer of property (conveyance) without disclosure or fraudulent sworn statements.
Myth #3: You will lose your job
Truth: The only way your employer would know that you have filed for bankruptcy is if your creditors seek payment through wage garnishment. Or if you choose to tell them yourself. But even if they knew, it is unlawful for your employer to end your employment because of personal bankruptcy. If you are in a profession that requires you to handle funds, and there are rules prohibiting employees from filing for bankruptcy, you should consider alternative debt relief options such as a consumer proposal.
Myth #4: Your partner’s credit will also be affected
Truth: Only the credit of the person filing for bankruptcy is affected. If you have joint debts with a spouse, and only one of you files for bankruptcy, then your partner will have 100 percent liability for the remaining debt.
Myth #5: You won’t be credible for future credit
Truth: Bankruptcy is rehabilitative – not punitive. As a first-time bankrupt, the record will stay on your credit report for 6 years after discharge. If you improve your finances during this time, your credit will improve.
It is possible that most of these myths are due to the assumption that Chapters ‘7’ and ‘13’ of the US Bankruptcy Code are similar to Canadian bankruptcy law, yet they vary considerably. To ensure that you make the right financial decision for you and your business, it’s important that you seek professional bankruptcy services in your area.