When meeting with clients for the first time, we frequently hear many misconceptions or "myths" about bankruptcy. We have summarized the more common myths below.
1 ) I will lose all of my assets and property in a bankruptcy.
Federal and provincial legislation governs the assets you are entitled to retain in a bankruptcy which are described as exempt assets. Most often in a bankruptcy all of the assets you own, including your house and car, will be retained by you as the assets qualify as exempt assets under federal and/or provincial legislation.
Conversely, non-exempt assets are assets that vest in your Trustee for the general benefit of your creditors. If you own non-exempt assets, such as a motorcycle, travel trailer or boat, we frequently structure the bankruptcy in a manner that permits you to repurchase the asset at fair market value and retain possession of the asset in a bankruptcy.
Furthermore, if the non-exempt asset you own, such as a motorcycle, travel trailer or boat, is subject to a lien or charge held by a secured creditor and there is no equity, you will often be entitled to retain possession of the asset in a bankruptcy by maintaining your monthly loan payments to the secured creditor.
2 ) My bankruptcy will last seven (7) years.
The length of a bankruptcy will range from a minimum period of nine (9) months for a first-time bankrupt with no surplus income to a maximum period of thirty-six (36) months for a second-time bankrupt with surplus income.
The reality is that for a significant majority of individuals filing for bankruptcy, the bankruptcy lasts no more than nine (9) months and costs approximately $1,800, which is the minimum cost of a bankruptcy pursuant to the tariff established by the Superintendent of Bankruptcy.
3 ) Bankruptcy will destroy my credit rating and I will never qualify to for another loan or mortgage.
For most individuals, their credit rating has already been compromised due to late payments, missed payments, collection action or legal action prior to declaring bankruptcy. The negative comments and ratings disclosed to the credit reporting agencies will remain on your credit report for seven (7) years following the date of the last comment submitted by the creditor.
4 ) Financial institutions will refuse to provide financing where negative comments or ratings appear on your credit report.
When you declare bankruptcy, you are assigned an R9 credit rating by the credit reporting agencies. The bankruptcy will remain on a credit report for six (6) years from the date of your discharge from bankruptcy.
However, immediately following your discharge from bankruptcy, you may begin to re-establish your credit rating.
At Faber Inc., we will work with you during your bankruptcy. We will provide guidance and insight during your counselling sessions to assist you in developing proper money management and savings techniques. We will outline methods to rebuild your credit and improve your credit rating through the proper use of good credit. Our clients frequently re-establish their credit and attain an R1 credit rating within two (2) years following their discharge from bankruptcy.
As surprising as this may seem, declaring bankruptcy to obtain a fresh financial start is often the fastest and least costly method for most individuals with a negative credit rating to improve and repair their credit rating.
5 ) You can never go bankrupt against the government for income tax debt or GST debt.
Often, when meeting with clients for the first time, they are surprised to learn that the debt they owe to Canada Revenue Agency ("CRA") for income tax or GST is included in a personal bankruptcy or consumer proposal.
The CRA is legally obligated to comply with the Bankruptcy and Insolvency Act. For Canadians with an inability to pay their income tax or GST debt, a personal bankruptcy or consumer proposal is the only option available to eliminate tax debts.
The CRA is unwilling to negotiate a settlement of tax debts with an individual taxpayer for any amount less than the full amount owed. Their logic is quite simple. There are millions of taxpayers in Canada. If the CRA makes a settlement with one taxpayer to pay a lesser amount of tax, it may force the CRA to make settlements with all other taxpayers. This would seriously compromise the standard of living for all Canadians.
6 ) My family, friends, co-workers and employer will know I filed for bankruptcy.
Generally, when you file bankruptcy, there is no requirement to publish notice of the bankruptcy in the "legal notices" section of the newspaper. Publication of a bankruptcy in a local newspaper only occurs in large or complex bankruptcies. For the average person, their bankruptcy is straightforward. The creditors are notified of the bankruptcy by mail and it is unnecessary to publish the bankruptcy in the local newspaper.
There is no requirement for your Trustee to contact your employer. The only time your employer will be contacted is when one of your creditors serves your employer with a garnishee summons to attach to a portion of your income. In these instances, the Trustee will contact your employer to terminate the garnishee summons.
While a bankruptcy filing is a public record, members of the general public have no knowledge that the public records exist or any knowledge of where to perform the search. There is also a registration and search fee required to perform a search that most individuals are unwilling to pay. Unless you tell them, your family, friends, co-workers and employer will not be aware of your filing a bankruptcy.
7 ) Filing for bankruptcy will affect my spouse or my spouse’s credit rating.
Although you may be married, you and your spouse are legally two separate individuals with your own individual legal rights. A personal bankruptcy applies solely to the person that files for bankruptcy.
Unless your spouse is named as a co-borrower or co-signed or guaranteed any loan, credit card, personal line of credit or bank overdraft agreements, your spouse will be completely unaffected by your filing bankruptcy. Your spouse will continue to be responsible for payment of his or her debts, as the only debts that are discharged in a bankruptcy are the debts of the person filing bankruptcy.
These are only a few of the more common myths about personal bankruptcy that we encounter at Faber. Do not be misled by these or any other myths you hear from friends, family or co-workers, as it may postpone your decision to seek professional advice, prolong your financial difficulties and delay your financial recovery.
The quicker you deal with your financial difficulties, the quicker you eliminate your stress and get your fresh financial start. Bankruptcy is not as bad as you may think or as bad as you may have heard.
Call Faber Inc. in Edmonton today to learn the true facts about personal bankruptcy and other debt restructuring plans that are available to you to eliminate your debt and give you the fresh financial start you deserve.