6 Reasons Bankruptcy Is Not an Easy Way Out of Debt
Wondering About Filing Bankruptcy in Vancouver, BC?
Our Debt Consolidation Experts Can Help
Being buried in debt can feel overwhelming, which is why many individuals file for bankruptcy to try to free themselves of their debt and get a fresh start. However, some people don’t realize the drawbacks of filing for bankruptcy and how it isn’t always the best option when trying to manage your debt load. It’s important to understand all the advantages and disadvantages of filing for bankruptcy in Vancouver, BC, and the surrounding areas, including Coquitlam and Westminster. To help you understand how filing for bankruptcy can affect your financial situation in the long term, the experts at J. Bottom & Associates Ltd. have listed below some of the reasons it’s not an easy way out of debt. Contact our team today to learn more!
1. You Risk Losing Your Assets
When you file for bankruptcy in Canada, you aren’t released from your debts without consequence. To help repay your creditors, you might have to surrender certain assets to your Licensed Insolvency Trustee. There are three types of assets they look at:
- Personal Property: Physical belongings (furniture, clothing, vehicles)
- Real Property: Your home or other owned real estate.
- Intangible Property: Non-physical belongings, including financial accounts or insurance policies.
The following assets are examples of assets that may not be exempt from seizure (you may lose them when filing for bankruptcy):
- Cash, non-registered investments, registered education savings plans
- Your primary residence (if the equity is greater than $10,783)
- Real estate that isn’t your primary residence
- A vehicle worth more than $7,117 (that has equity)
You can retain or keep the following assets when you file for bankruptcy:
- Furniture and appliances to a maximum value of $14,180
- A vehicle, if the equity in it is less than $7,117
- Your home, if the equity is less than $10,783
- The tools of your trade or profession, to a maximum value of $14,405
- Registered pension plans
- Certain insurance policies
- RRSPs, except for contributions made in the year before filing bankruptcy
2. Your Credit Takes a Hit
Unless your credit score is already extremely low, filing for bankruptcy makes it fall significantly. You can rebuild your credit score after bankruptcy, but it takes years and effort. When your credit score is low, it’s less likely you’ll be able to borrow money from creditors. This can affect major milestones in life, such as purchasing a vehicle or home. If you can obtain credit with a low credit score, your interest rate will likely be extremely high, and the loan amount will likely be small.
3. It Can Affect Your Career
While filing for bankruptcy isn’t a terminable offense in Canada, it can affect many aspects of your employment. With some jobs, you must tell them you’re bankrupt. While this usually doesn’t change anything, some employers may limit the tasks you can do at work (which are relevant to bankruptcy). One example is if you’re working as a financial consultant, your professional advice may be questionable.
It’s uncommon, but some employers may ask you if you are bankrupt, or they may perform a credit check before hiring you.
4. Some Debts Aren’t Released
Some people believe that once they file for bankruptcy, they have nothing else to worry about regarding their finances. Bankruptcy only releases your unsecured debts, including debt from credit cards, overdue bills, and any unsecured lines of credit.
Secured debts, such as car loans, mortgages, and child support, can’t be released through filing for bankruptcy. If you retain these assets upon going bankrupt, you’re still required to pay the remaining mortgage or car loan.
5. It Can Affect Your Spouse
If your debts are all personal (meaning you are the sole owner of them), then your spouse won’t be affected by your filing for bankruptcy. However, there are a few common circumstances that might leave your spouse affected.
If your spouse has co-signed on any of your debts, it’s their debt as well. There are options for filing a joint bankruptcy. If you have a shared credit card connected to your main credit account with your spouse, your spouse may also be liable for the debt accumulated, even if they didn’t spend any of the money.
6. You’re Still Required to Make Payments
Bankruptcy might be the best option for some individuals to find debt relief, but it doesn’t release you from being required to make payments. Surplus Income is a payment made to your Licensed Insolvency Trustee, and it’s based on your monthly net income and how many dependents are in your household.
Alternatives to Filing for Bankruptcy
If you’re feeling backed into a corner and want to explore all your options for debt relief and debt management, the financial experts at J. Bottom & Associates are here to help. We want you to know all your options when facing a stressful financial situation. Some common debt relief options include:
- Debt Consolidation – Debt consolidation combines several different debts into one. An existing or new lender lends you the amount required to pay off some or all your debts. This helps simplify an individual’s outstanding debts and may also reduce the interest rates they’re currently paying.
- Consumer Proposal – Consumer proposals are legally binding arrangements that help individuals pay off their unsecured debts. In most cases, the agreement will allow you to pay back a fraction of the unsecured debt that you owe over a period of no more than five years. In comparison to bankruptcy, a consumer proposal typically has less of a negative impact on your credit report and can make it possible for you to retain assets you could lose through filing for bankruptcy.
Reach Out to the Team at J. Bottom & Associates Today!
At J. Bottom & Associates, we provide you with customized solutions and action plans to best manage your debt load, whether personal, business, or tax debt. Whether you’re interested in learning more about filing for bankruptcy or other debt relief solutions, our financial experts are here to help you overcome your financial challenges in Vancouver, BC, and the surrounding areas, including Coquitlam and Westminster, BC. Contact us today to learn more about filing for bankruptcy or schedule a free consultation!