Filing for personal bankruptcy still carries a powerful stigma today. The word creates fear of irresponsible consumption. There are a lot of myths and rumours surrounding bankruptcy making it unclear if it may be the best financial solution for you. Personal finance expert Bruce Sellery provides a guide to personal bankruptcy to consider.
- What are you hearing from people right now?
There are two groups of people. Those who are dealing with the financial strain of the pandemic and those who aren’t. The first group has deferred their mortgage and their utility bills. The second is annoyed that they can’t book a winter vacation because they don’t know if the borders will be open. For those feeling the financial strain, they are stressed. They are exhausted. And they are afraid. So, this conversation is for them. We are going to take care of them today. And there is hope: This process is hard for many to talk about but you’ll feel 1,000% better about the world once it’s done.
- Just hearing the word “bankruptcy” can be stressful for people. Why is that?
Many people get the definition of bankruptcy wrong. They think the word bankruptcy means, “A person who is lazy and bad and terrible with money. See also “social pariah.” It means NONE of those things. Bankruptcy is a “legal procedure designed to provide financial relief to people with an overwhelming debt burden” To quote the bankruptcy act: “It permits an honest debtor, who has been unfortunate to make a fresh start”. It doesn’t say anything about your character. You will not go to jail and you will not lose your job. That being said doesn’t mean that it is easy. And should be entered into lightly, but it isn’t helpful to add all the shame to it. It also isn’t the only option. There are other options.
- What are some of the other options?
It depends on what’s going on in your personal situation – how much debt you have, and what other income and assets you have. Maybe you could sell some assets to clear your debts, or get a debt consolidation loan at a lower rate. Or you might be able to do something called a “Consumer Proposal”. You work with a trustee to make an offer to creditors a portion of what you owe them. A consumer proposal is simpler than bankruptcy and can be cheaper and you’re not required to surrender any assets.
- How do you figure out which is the best one for you?
Start by talking to a non-profit credit counsellor. Look for one online. They will talk to you and get a sense of what you “own” and what you “owe”. They can take you through the options. If a consumer proposal or bankruptcy filing seems to make sense, they can help you find a “licensed insolvency trustee”. The trustees are for-profit. They are selling a service like an accountant or a lawyer and they are paid by the creditors. This person will then take you through the process. Some trustees are a bit wary of the non-profit counsellors, arguing that you’re going to pay more to discharge your debt. But they make their money when debtors work with them on a filing.
- So, say you decide to file for bankruptcy. What happens?
You hand over all your assets. Everything that has value and can be sold to pay off your creditors. But that doesn’t have to include your home, if you don’t have significant equity in it. But there are some exemptions, and they differ depending on where you live: For example, clothing, household furnishings, a car up to a certain value. Basically – there are some protections to ensure that they can still live. And your credit rating will be shot for 6 years. But that might not matter, because it might be shot already. That’s no walk in the park, but the objective is that you can get a fresh start and rebuild your finances.