8 myths about bankruptcy
If you're struggling financially, personal bankruptcy is a way to get a fresh start without having to pay off all of your debts. Before choosing this option, however, you must be well informed. Several stubborn myths still persist about bankruptcy today. Here are ten.
1. Everyone will know that you have filed for bankruptcy.
All bankruptcies are public, but you usually have to do extensive research to get this information. Only larger bankruptcies are the subject of a legal notice which will be published in newspapers. In general, the only people informed of the bankruptcy of a consumer are his creditors and the trustee he will have hired, if applicable.
2. You will lose all of your possessions.
In fact, a person who goes bankrupt can keep some of their property. In Quebec, the law provides that you can keep up to $ 6,000 worth of furniture and appliances. There are also other exceptions such as food, clothing and tools that allow you to do your job. In some cases, it is even possible to keep your car. As long as you make the payments, of course.
As for your home, you might lose it, but it doesn't happen automatically. The Licensed Insolvency Trustee will first check the equity of the home, which is the paid portion of the mortgage. If it is very low, you may be able to keep it. If it's high, you may have to sell or refinance it. If your financial institution were to repossess your home, you will be given a period of time to relocate. The authorized trustee will discuss with you to determine the length of the period granted.
3. Your spouse's credit rating will be affected by your bankruptcy.
Bankruptcy is personal, so it won't affect your spouse's credit rating. His property will not be seized either. On the other hand, if you have property in common, your spouse may have to redeem your units in order to keep them.
4. Bankruptcy frees you from all debts.
The truth is, it will free you from most of your debt. There are exceptions, however, such as child support, a student loan if studies were less than seven years old, a fine or monetary penalty imposed by a court, or debt incurred as a result of fraud.
Moreover, contrary to popular belief, tax debts can also be written off in bankruptcy. However, you may have to go to court for a discharge hearing and ask a judge to release you from your financial tax obligations. The hearing is required if the tax debt is over $ 200,000 or represents more than 75% of your debt. It is strongly recommended that you do business with a lawyer if you are asked to appear for a release hearing. Your creditor will surely do the same so as not to free you from your debt.
5. Going bankrupt will ruin your retirement.
On the contrary! Your pension funds, locked-in retirement accounts (LIRAs) and registered retirement income funds (RRIFs) are elusive. In the case of a registered retirement savings plan (RRSP), only contributions made during the last twelve months can be entered. It is therefore possible to go bankrupt without losing all your savings for your retirement.
6. You will no longer be able to borrow after your bankruptcy.
Your credit report will be blemished for a period of six years after discharge from bankruptcy. During this time, it will actually be more difficult for you to obtain credit. However, if your creditors are chasing you, your credit is probably already bad. Over time, and by adopting healthy habits like paying your bills on time, you can rebuild your credit.
7. You should seek out a debt management advisor before going bankrupt.
The truth is, you might end up spending for nothing. Only the Licensed Insolvency Trustee is authorized to file an Assignment in Bankruptcy. So it is better to speak to him directly. Even if you are not sure whether bankruptcy is the solution for you, you will not lose anything by encountering it. The first consultation is always free. Then, the trustee's fees vary depending on the agreements between you and your creditors as well as the sums you will have to pay to them. Bankruptcy trustees are also governed by a code of ethics and must comply with the Bankruptcy and Insolvency Act.
8. You could lose your job due to bankruptcy.
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