Five Fears About Bankruptcy in Canada

Every day we talk to people who are worried about filing bankruptcy. They are nervous about the process; they don’t know what will happen. Many of them are afraid, so to help you deal with those fears about bankruptcy I would like to discuss the five most common fears people have about filing bankruptcy. After meeting with us many people say things like “I should have come to see you sooner, this was not as scary as I thought it would be.” Your trip to see a bankruptcy trustee should not be scary. We want to help you to find the best solution for you and your debts. It may be declaring bankruptcy, but it could also be a consumer proposal; bankruptcy may not even be necessary.

The first fear we hear is that when you go bankrupt someone will come to your home and take all of your personal possessions. That’s not true. Each province in Canada has a list of personal possessions that are exempt from seizure, meaning you can keep them if you go bankrupt. For example, Ontario law states that your household items such as your television and furniture are exempt up to a value of $11,300 and your personal items, such as clothing and shoes are exempt up to a limit of $5,650. You may also keep one vehicle if it is worth less than $5,650 (this exemption is not for cars that are financed or leased – those vehicles you may keep if you continue to honor your contract). It’s even possible to keep your house in bankruptcy under certain circumstances.

The second fear is that after bankruptcy you will never get credit again. Again, that is not the case. Obviously filing bankrupt will damage your credit, but if you are filing bankruptcy in Canada your credit is already less than perfect. Once your debts are eliminated you should be able to start saving money, and if you have a job and a security deposit it is definitely possible to repair and rebuild your credit after bankruptcy and borrow again, should you choose to do so.

The third fear is that my bankruptcy will affect my spouse. If your debts are in your name, your bankruptcy will not affect your spouse‘s credit report. Your spouse is only responsible for debts that they have signed or co-signed. Just because you are married does not automatically make your spouse responsible for your debts.

The fourth fear is that you will go to jail if you don’t repay your debts, or that you will be unable to leave the country. I think this fear starts with overly aggressive collection agents. Borrowing money is not a crime, unless you committed fraud to get the money. In most cases you borrowed the money expecting to be able to repay it, but were unable to do so due to a change in your circumstances. Many times I have had a person in my office asking me if they will lose their passport or citizenship and not be permitted to exit or re-enter the country. Unfortunately, many people put off calling our office because they are afraid that being proactive about their debts will result in losing their status to live as a free Canadian citizen. Not paying your debts or filing for bankruptcy will not stop you from traveling to visit friends or family abroad – there is no notation on your passport or citizenship that you have filed for bankruptcy. So you should be able to travel outside of Canada and within Canada without any issues.

Finally, I think the biggest and most common fear for many people is the idea that they will have to wait seven years for the bankruptcy “damage” to clear. Yes, there will be a note on your credit report for at least six years after you are discharged from bankruptcy. But again, I have dealt with hundreds of people over the years who have completed their bankruptcy and gone on to purchase a car, a house, and even to start a new business. The key is that they live within their means and save money, which combined with a good income will allow you to rebuild your credit. I strongly recommend that everyone create a budget, and watch what you spend. By saving money, you can get repair your credit after bankruptcy.

No-one wants to file bankruptcy, so it’s natural that most people have some fear about going bankrupt. Those fears are normal. By researching your options and addressing those fears, you can overcome your fears. If you have more debt than you can handle, you need a solution, so contact a trustee today for a free initial consultation, and find the answer to your fears, and get a fresh start.

A Licensed Insolvency Trustee