Four Common Mistakes when Filing for Bankruptcy
Debts can be overwhelming and can leave you feeling like there’s nothing left to do. While declaring bankruptcy should not be your first solution out of debt, it is a way to help you financially. Before you decide that this is the answer to your problems, make sure you understand the mistakes and misconceptions about filing for bankruptcy.
Ignoring the Alternatives
Bankruptcy may be the answer to your problem, but before determining that, it is important that you make yourself aware of other alternatives.
A federally licensed trustee in bankruptcy can help you to work on your money management or look at the possibility of a consumer proposal which will help:
- manage any surplus obligation
- repurchase assets, like your house; and
- be better for your credit rating
Remember that bankruptcy is not your only option, and may not be the best decision for your financial situation.
Believing that Bankruptcy Ends the Problem
Declaring bankruptcy will eliminate most debt. It ends phone calls from debt collectors, it stops collection actions and garnishments, it gives you a second chance. The bankruptcy process includes financial counselling which gives you the tools and examines possible lifestyle changes so you don’t fall back into old bad habits and the recurring cycle of debt.
Thinking That You Will Lose Everything
Filing for bankruptcy is a big step and should not be taken without serious consideration. You are allowed various exemptions to keep furniture, personal effects and a motorized vehicle (car), but equity in other assets is subject to the creditors’ claims. Your biggest asset and concern is generally your home. The trustee will try and work with you to develop a repayment plan that works for both you and your creditors. In some cases, during your discussions with the trustee you may come to the conclusion that it is not possible or wise to keep the house and voluntarily surrender it now in order to be financially secure in the future.
Believing That Filing Is Free
There is a cost to bankruptcy. The government has set financial standards based on the number of people in your household and total household income. This income is the same across Canada.
The trustee will calculate and explain the surplus income obligation you may have to pay. A first time bankrupt with surplus will make these payments for 21 months. A first time bankrupt with no surplus is obligated to pay the trustee’s fee and will be bankrupt for 9 months.
While filing for bankruptcy is serious business, it does not have to be a traumatizing experience. Make sure you are able to separate fact from fiction before you jump to conclusions about your financial situation. NEED HELP? Contact Harris & Partners Inc., a licensed trustee in bankruptcy. We direct you to the nearest location for a free consultation.