Many people hear the word ‘bankruptcy’ and immediately have misconceptions about what it is and the type of individual who may file it. The truth is, most of what you have probably heard about bankruptcy is wrong. And bankruptcy in Alberta isn’t as uncommon as you’d think. The following are some common misconceptions that often cause unnecessary worry:
- I will lose all of my assets and property in a bankruptcy.
Usually, all of the assets you own—including your house and car—will be retained by you, as they qualify as exempt assets under federal and/or provincial legislation. If you own non-exempt assets, such as a recreational property, investment property, motorcycle, boat, or recreational vehicle you have the option to structure your bankruptcy in a manner that enables you to repurchase the non-exempt asset at fair market value and retain possession and use of the non-exempt asset in a personal bankruptcy.
- My bankruptcy will last seven (7) years.
The length of a bankruptcy ranges from a minimum of nine (9) months for a first time bankruptcy with no surplus income, to a maximum period of thirty-six (36) months for a second time bankruptcy with surplus income.
- Bankruptcy will destroy my credit rating, and prevent me from qualifying 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 by your unsecured creditors will remain on your credit report for seven (7) years following the date of the last comment submitted by the creditor.
- Financial institutions will refuse to provide financing where negative comments or ratings appear on my credit report.
When you declare bankruptcy, you are assigned an R9 credit rating by the credit reporting agencies. The bankruptcy will remain on your 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. There is no need for you to wait six (6) years for the bankruptcy to be removed from your credit report to re-establish credit.
- You can never go bankrupt against the government for income tax debt or goods and services (“GST”) debt.
Debt owed 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.
- My family, friends, co-workers and employer will know I filed for bankruptcy.
Publication of a bankruptcy in a local newspaper only occurs in large or complex bankruptcies. For the average person, bankruptcy is straightforward. The creditors are notified of the bankruptcy by mail and it is unnecessary to publish the bankruptcy in the local newspaper. 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.
- Filing for bankruptcy will affect my spouse or my spouse’s credit rating.
Legally, you and your spouse are two separate individuals, with your own individual legal rights. A personal bankruptcy applies solely to the person that files for bankruptcy, so unless your spouse is named as a co-borrower, or co-signed or guaranteed one or more of your debts such as a loan, credit card, line of credit or bank overdraft, your spouse will be completely unaffected by your filing bankruptcy.
Thank you all for making a not so happy time a positive learning experience.Kelvin & Deb J.