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Debunking 8 Common Bankruptcy Myths

Posted by in Bankruptcy
1
Apr 2021

The process of bankruptcy is a troubling time for any business or person. There’s so much information to understand and legal ramifications that come along with every step. This leads to a lot of misinformation being perpetuated, with different ideas and stigmas being associated with filing for bankruptcy.

Debunking 8 common bankruptcy myths

It is important to understand what you’re getting into before you decide to file for bankruptcy. While there are many resources available on the topic, make sure you’re getting your information from the right source and remember to double check it. At Kevin Thatcher & Associates, our team is composed of licensed insolvency professionals who know the right information from the myths. We’ve put together a short guide to help guide you on your insolvency journey and debunk 8 common bankruptcy myths you might have heard in the past.

1. Everyone Will Know You Filed for Bankruptcy

No, they won’t. Bankruptcy is more common than you think; so many businesses and individuals have been hit with the financial crisis, and many do end up filing for insolvency. The most common question we get when filing for bankruptcy is if others will know. The simple answer is that it is up to you if you wish to share that information.

While bankruptcy records are public, it costs money to search government records. Newspaper notices report only the large cases of bankruptcy, which is a category that most everyday cases do not come under. As such, it is likely no one will stumble across or make the effort to find your record, keeping the matter up to your discretion to keep private or public.

2. Only Poor People Go Bankrupt

This is simply not true. Bankruptcy is more common than you think, as financial problems can hit just about anyone. People with high incomes, modest incomes, and anywhere in between file for bankruptcy. Bankruptcy itself is simply a process outlined by a set of federal rules that allows anyone who is unable to meet their financial obligations to get relief.

3. You Can Pick Any Bankruptcy Trustee to Help You

This statement is not incorrect. If you’re planning to file for bankruptcy in Canada, the law mandates that you need to file with an insolvency trustee. Trustees are licensed professionals who act as an intermediary between you and the creditors, and are licenced to help you navigate the insolvency process.

All trustee’s follow the same set of rules but you want to pick a company and Trustee you feel comfortable with as they will be with you for the entire process.

4. Declaring Bankruptcy Is a Lengthy Process

A common myth is that declaring bankruptcy takes over 7 years—this is untrue. In many cases of bankruptcy last only 9 months but the average is between 9 and 36 months. Although the number of months can differ on a case by case basis, if your case is fairly straightforward (as over 80% of the cases are), then you will not have to suffer a lengthy insolvency period.

5. You Will Lose All Your Assets

No, you will not lose all your assets and be rendered homeless. This common myth stems from the media portraying it as a process where you lose everything, but that is not true. If you file for bankruptcy, you may need to deal with the value of select assets to make the process fair for your creditors. Many assets are exempt in a bankruptcy filing. The kind and number of assets varies by jurisdiction, so be sure to check out the laws in your area. Generally, certain assets can be retained, from cars and homes to pets, as well as RRSPs, RRIFs, or locked-in pensions.

6. Your Credit Report Will Be Ruined

Filing for bankruptcy definitely affects your credit and will appear on your credit report. However, this record does not last indefinitely. For a first time bankrupt six to seven years after filing for insolvency, the charge drops off your credit report, and no one will be able to see that you filed in the first place. This will allow you to begin rebuilding your credit by taking out a secured credit card and applying for loans. Generally the accumulated debt that a bankruptcy gets rid of will affect your credit more in the long run as you continue to be unable to pay it.

7. All Your Debts Will Go Away

Another common misconception is that filing for bankruptcy makes all your debts magically disappear. While it is true that the process provides you with relief and forgiveness from the majority of your debt. You are still responsible for debts such as alimony payments, and child support. There are also debts such as student loans where the rules stipulate that you can only be completely released from the debt if you file more than seven years from when you completed your schooling.

Filing for insolvency does not generally cover secured debts such as mortgages or car loans unless you want to return them to the lender. If you want to keep these items and must maintain the payments. Another point to keep in mind is that when you declare bankruptcy on joint debts your bankruptcy only protects you from the debt and not the joint owner of the account..

8. Bankruptcy Is the Only Option to Relieve Your Debt

There are alternatives to filing for bankruptcy that any company or individual may explore. Debt management programs, orderly payment of debt, consumer proposal, refinancing your home, and debt consolidation are all viable options. When it comes to choosing the solution for your specific situation, speak with a licensed and accredited insolvency counsellor before deciding. They will help you navigate your various options and help you find the best solution for overcoming your financial difficulty.

As you can see, debt relief is a tricky process, with many common misconceptions and theories about how to go about filing for bankruptcy. The time and energy needed to understand the right solution for you can be made easier with the right team to back you up, leaving you to lead your debt-free life.

To learn more about debt relief and bankruptcy services, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.

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