By Jasmin Brown, BDO Debt Solutions

BDO Debt Solutions

Common myths about bankruptcy

Mar 17, 2021 | 2:07 PM

I have noticed through my conversations with many people that there are several misconceptions about bankruptcy and how it works. Some of the concerns that I hear regularly are regarding assets. Am I going to lose my house? Do I have to return my vehicle? Will they take my RRSPs? Other questions have to do with whether or not everyone will know about it, the impact on credit reports, and how it affects married couples.

Bankruptcy is not the only option when it comes to paying down debt. In many cases it is a last resort. However, sometimes it is a reasonable solution that will offer you a fresh financial start. And it is a lot less scary than many people think. Some of the common myths related to bankruptcy are:

Myth #1: I will lose everything

Filing a bankruptcy does not mean that you will lose everything – that includes your house, vehicle, RRSPs etc. Saskatchewan is known for having many of the most generous exemptions in the country. Exemptions refer to property that is protected in a bankruptcy scenario. In regard to “secured debts” which are debts that are attached to assets (mortgage, vehicle loan, etc.), you are required to keep your payments current in order to keep the assets.

Myth #2: Everyone will know if I file for bankruptcy

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When you file for bankruptcy, it is true that it does become part of a public record. However, it is highly unlikely that anyone will actually find out about it. In the vast majority of situations, it is really only your Trustee and the creditors that are made aware of your filing.

Myth #3: My credit rating will be damaged forever

While filing for bankruptcy does have an impact on your credit rating, it does not last forever. The bankruptcy brings your credit rating to an R9 and as a first-time filer, remains on your credit report for six years after your discharge. After that, it is removed. Often times when people are avoiding paying their debt or they are over-extended, their credit rating is already deteriorating. You can begin rebuilding your credit immediately by keeping up on payments of secured debts (mortgages, vehicle loans, etc.). You can also apply for a low-limit secured credit card. Bankruptcy is meant to give you a fresh financial start and to let you hit the “reset” button. It is not meant to punish you indefinitely.

Myth #4: My spouse’s credit rating will be affected

Many people believe that by virtue of being married, they are each responsible for the other’s debt. That is not true. Each person’s credit report is uniquely their own. You cannot affect another person’s credit report either positively or negatively. You only have the ability to impact your own. Similarly, your bankruptcy will not clear your spouse’s obligation on a debt that you owe jointly. If you have a joint debt with your spouse (or any other person), and he or she does not also file, they will remain completely responsible for payment of the debt.

Myth #5: I will not be able to buy a house or have credit in the future

As I mentioned previously, bankruptcy is not meant to punish you indefinitely. It is truly meant to give an honest but unfortunate debtor a fresh start. You will have the opportunity to rebuild your credit and to borrow again in the future. When borrowing, a financial institution will lend based on your full financial picture. The important thing is that you get your discharge from bankruptcy and work on rebuilding your credit. As long as you do, it is possible to be approved for a mortgage as soon as two years after you are discharged.

If you have been holding off on meeting with a Licensed Insolvency Trustee based on any of the above myths or have any other concerns, initiate the meeting anyway. There are many misconceptions about bankruptcy. In the initial consultation with a Licensed Insolvency Trustee, you will have the opportunity to discuss your situation in a judgment free environment. It will give you the chance to learn more about the process and decide which option is best for you. There is nothing to be afraid of and there is no obligation to proceed. Knowledge is power. It may be that a lot of what you thought you knew about bankruptcy really wasn’t true.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information about bankruptcy, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Prince Albert and Area