Personal bankruptcy can often carry a negative stigma, but many people who find themselves in desperate financial situations have full intentions of paying their creditors. Accidents, divorce, the death of a spouse, or severe illness can propel a well-meaning consumer into exponential debt. Due to this stigma, many people are afraid to seek financial help, and may carry a misunderstanding that prevents them from seeking the relief that bankruptcy provides. Here are 7 common misconceptions about bankruptcy:
Anyone can file for bankruptcy
Only those who satisfy the following criteria can file for bankruptcy:
An individual who owes creditors at least $1,000 and;
Is unable to make regular payments to creditors as they fall due; and, or
Whose property, at a full evaluation, is insufficient to enable payment of all debts.
If I file for bankruptcy, I will lose everything
Although you do have to give up some assets to pay back your creditors, you won’t lose everything. In British Columbia, the amount of personal property that is exempt from seizure (items that the Trustee cannot take away from you) in the case of a bankruptcy are the following:
Household goods $4,000;
Tools of the trade $10,000;
Motor Vehicle $5,000 (reduced to $2,000 for maintenance debtors);
Equity in a Home ($12,000 in Greater Victoria Regional District, $9,000 elsewhere);
All necessary clothing and all required medical aids (of debtor or dependent).
Don’t worry, you can also keep your pets.
Everyone will find out I’ve filed for bankruptcy
Legal notices are only posted to notify creditors of large bankruptcies. For smaller assets, creditors are notified directly with a creditors package or statement of affairs that includes a notice of bankruptcy. Although bankruptcy filings are a matter of public record, there are registration procedures and expensive fees to access them.
Bankruptcy will ruin my credit rating
If you are in a position where you are considering bankruptcy, chances are collection agencies are already knocking at your door, and your credit rating is already negatively affected. Bankruptcy notations remain on your credit report for a certain number of years after discharge. Once you have completed your bankruptcy or proposal, you can make a clean financial start, and work on rebuilding your credit. Secured credit cards and loans can usually be obtained shortly after discharge.
Bankruptcy erases all your debts
Once you are discharged from either the bankruptcy or Proposal all your debts are wiped away or are discharged EXCEPT for debts that arose from;
Awards of Damages for intentionally inflicting harm on another person
If you wish to keep some debts out of your bankruptcy or proposal, read more here
Bankruptcy is free
The initial interview with the trustee, where your financial options are outlined, is free. You then make a choice as to how to proceed, if you want go forward with either a bankruptcy or consumer proposal. You must then make monthly payments to the trustee. For a bankruptcy, the amount paid to the trustee depends on your monthly income, assets you own and minimum amount payable. The fees charged to perform bankruptcy work is regulated by the federal Bankruptcy and Insolvency Act.
Bankruptcy will ruin my spouse’s credit rating
A bankruptcy is tied to the individual filing for it. If your spouse did not co-sign for your debts, creditors cannot go after your spouse for debts in your name. On the other hand, you cannot discharge your spouse’s debts through your bankruptcy.