Plenty of people find themselves in desperate financial situations despite having honest intentions of paying their debts. In these situations, you might be forced to make some pretty tough decisions. Bankruptcy fears are real but there are also some misconceptions or exaggerated beliefs that may make you more apprehensive than necessary.
1. You Will Lose Everything
It’s true that if you have a lot of assets, you will lose a lot of them after filing but you won’t lose everything. There are certain things that are specifically protected during the bankruptcy process, namely RRSPs, RRIFs, and locked-in pensions, among other things. Each province actually will have its own list of items that you are allowed to keep.
2. People Will Know That You Have Filed for Bankruptcy
Many people are hesitant to file for bankruptcy over fears that people, especially their friends or family, will find out. While bankruptcy filings are public record, they are seldom looked at without reason and only large bankruptcies are added to the legal section of newspapers. Unless you tell people yourself, it’s unlikely that they will find out.
3. Bankruptcy Erases All Debts
Other people assume that filing for bankruptcy erases all of their debts but this is not true. There are some debts that will not be discharged and these typically include car loans, mortgages, court fines, and student debts, among others. However, the debts that get erased during bankruptcy may vary depending on your situation.
4. You Will Never Get Credit Again
One of the most common worries is one’s credit rating. Many people fear that not only will the rating be destroyed but that they also won’t be able to get it back up. Firstly, if you are filing for bankruptcy, chances are that your credit is already in a bad state but you can start rebuilding your credit almost immediately after completing a bankruptcy filing. Bankruptcy will remain on your credit file for six years, after which it will disappear. During that time, however, you will have opportunities to rebuild.
5. You Will Destroy Your Spouse’s Credit
In certain circumstances, your spouse could be affected. However, if he or she has not guaranteed or co-signed any loans or credit cards, the credit rating will not be affected. Creditors also can’t go after your spouse if the debts in question are in your name so your spouse will almost always be safe. Of course, this also means that the spouse’s debts must still be paid.
6. Filing for Bankruptcy Doesn’t Cost Anything
You may think that you shouldn’t have to pay anything when filing for bankruptcy but this, unfortunately, isn’t true, especially if you are working with a trustee. Bankruptcy trustees have fees, which usually come from money that gets freed up during liquidation. You may also be required to attend counselling sessions that will have additional costs. If you have no assets that can be liquidated, you may also be required to pay trustees on a monthly basis.