Bankruptcy is stressful enough without the added weight of myths and unfounded beliefs to the experience. In fact, some people are so afraid of the myths around bankruptcy and debt consolidation that they put off dealing with their out-of-control finances for weeks or months on end.
It seems too that the situation is worsening in Ontario. The household debt-to-income ratio in Canada is around 170%, and that’s an increase of 23% from a decade ago. This means that a lot more people need to explore debt consolidation or face bankruptcy sooner than they realize.
Canadians are Awash With Debt
In fact, high levels of debt appear to be the new normal. The Bank of Canada says that almost half of all high-ratio mortgages in Toronto are to borrowers with loan-to-income ratios in excess of 450%.
Many individuals are at risk of debt consolidation or bankruptcy because they have embraced a middle-class lifestyle; they work, earn good salaries, own their own home, and enjoy good lifestyles. Problem is, behind this is a lot of debt and poor financial decision making.
Does this sound like you? Are you worried about accessing a debt consolidation loan or declaring bankruptcy because of myths you’ve heard? In this article, we are going to address the most popular myths, so that your course of action is clear and free of anxiety.
Myths About Debt Consolidation and Bankruptcy
In the past, bankruptcy many believed that regulations could be pretty strict allowing for no future recovery, so people put people off debt consolidation or declaring bankruptcy sooner. Over the years some of this stigma has been removed, although bankruptcy can still be a stressful experience.
Myth #1: You’ll Lose Your Home
Loss of a personal residence is one of the biggest fears most people face, and it shows how much we value our homes from an emotional perspective. The truth is that creditors are only interested in the equity you have in your property. If there is little or no equity in your home and can maintain your mortgage payments, you will not lose it. When there is equity in a property you can make an agreement to be able to repurchase the equity from your trustee so the value can go to yours creditors.
Myth #2: You’ll Go to Jail
The only way you could end up in jail after discussing debt consolidation or declaring bankruptcy would be if you submitted fraudulent statements, or transferred property or assets without disclosure. To anyone with any common sense, these are clearly illegal activities. If you’ve not done anything illegal, you won’t go to jail. You cannot go to jail for debt consolidation or being bankrupt.
Myth #3: You’ll Lose Your Job
An employer cannot end your employment because you are bankrupt. That would be illegal. In fact, they generally do not know about your debt consolidation or bankruptcy unless there is a wage garnishment and the trustee must send information to have it stopped.
Myth #4: Your Income Will be Restricted
This isn’t true. An individual who is bankrupt is not restricted in what they can earn. However, if a person’s income is over a certain amount they must pay more to creditors based on government rules. The Bankruptcy and Insolvency Act details rules around surplus income standards and the guidelines are adjusted yearly. These govern the portion of your income which must be paid to creditors. Also, it’s important to note that, depending on your income, you could be bankrupt for longer before discharge.
Myth #5: You Won’t be Able to Renew Your Mortgage
This is incorrect. Most insolvency experts and bankruptcy trustees agree that a mortgage will be renewed IF you maintain your payments and plan to stay with the same lender. Most mortgages are set up with an auto-renewal, so this shouldn’t be an issue if you seek a debt consolidation porposal or declare bankruptcy.
Myth #6: The Taxes You Owe Can’t Be Included in Bankruptcy
If yours is a case of fraud or tax evasion, then the Canada Revenue Agency may have already taken steps to recover what you owe it. However, if you have not broken the law then the taxes you owe are classed as unsecured debts which can be fully discharged by bankruptcy. Included here are personal taxes and, if you own a business, corporate taxes, payroll taxes, and GST/HST.
Myth #7: Everyone Will Know You’ve Filed for Bankruptcy
This fear is another myth and likely stems from the sense of embarrassment or shame that some people feel after seeking debt consolidation or bankruptcy. However, no one will know about your bankruptcy except your trustee – and they keep this information private -, the government, and your creditors. However, it’s important to note that businesses can see this information on your credit history, or one can pay to search the Office of The Superintendent of Bankruptcy Canada for the names of individuals who have declared bankruptcy, but this only happens if something has triggered some kind of suspicion and they decide to make the effort to do a search.
Myth #8: You’ll Never be Able to get a Line of Credit Again
This myth is probably based on the fear that a person’s life is ruined after asking for debt consolidation or declaring bankruptcy. This simply isn’t true. The Bankruptcy Act aims to be fair to creditors while at the same time rehabilitating your finances. After discharge from bankruptcy, the declaration stays on your credit history for six to seven years if this is the first time you have declared bankruptcy. After that, it’s gone from your credit records. Even when it is still on your credit history it does not mean you cannot get credit. However, it will be more difficult at the beginning as you build lender confidence. Once your credit has improved you will then be free to buy, for example, a house or a car – if you have a good income and/or can afford it.
Trustees work with their clients who have applied for a debt consolidation loan or who have declared bankruptcy and teach them about budgeting and how to remain debt-free. From this point of view, you can see how an individual who was once bankrupt and who is now debt-free will look like a good bet when it comes to lending money!
In fact, some individuals who work hard with their trustees are fortunate enough to get a mortgage even though bankruptcy is still on a credit report when applying for the mortgage.
If you have been putting off seeking a debt consolidation proposal or applying for bankruptcy because of fear about what may or may not happen, contact Kevin Thatcher & Associates for the facts about bankruptcy today. It’s not an easy step to make, and the experience can be stressful, but we will support you all the way.
Kevin Thatcher & Associates deals with facts and we’re here to work with you in a non-judgemental and supportive environment. Call us at 1-866-702-9801 and let’s begin getting your finances off on the right start today.