Myths and reality: what are the consequences of bankruptcy?

Myth 1: If I contact a counsellor in financial recovery or Licensed Insolvency Trustee, I will have to declare bankruptcy.

Contrary to what people often think, bankruptcy isn’t the only solution to financial problems. There are a number of alternatives to bankruptcy. Our counsellors are there to help you choose the best one for you. Here are some:

• Consumer proposal: Under the law, you only have to repay your creditors for part of your debts with this option. You can also extend your repayment period. You can even do both.
• Debt consolidation: You can combine all your debts into one. This way, you only have to make one payment per month.
• Voluntary deposit: You agree to make a payment to the court every month until your debts are repaid.
• Declaring bankruptcy: In some cases, bankruptcy might be the best solution for starting again with a clean slate. It involves several steps. You can count on one thing: you are not going to lose everything you have!

Be sure to make the right decision by booking an appointment with one of our experts today.

Myth 2: If I declare bankruptcy, I’ll lose my car and home.

Are you afraid of losing everything by going into bankruptcy? It’s understandable that you’re worried, but you shouldn’t be. Whatever happens, you’ll keep your essentials. You can pay a certain amount each month to keep some of your property. Our counsellor will help you determine this amount.

You can keep:

• Your furniture
• Your food and clothing
• The tools and equipment you need for your work
• Money received as compensation for physical injuries
• Employer pension funds
• RRSPs (except contributions made in the last 12 months)
• Registered retirement income funds (RRIFs)
• Locked-in retirement accounts (LIRAs)
• Your home and car, in most cases

Myth 3: I can’t bounce back after a personal bankruptcy as I’ll have lost everything.

It bears repeating: bankruptcy is not a failure. If anything, it’s a relief. If you think about it, your current situation can only improve.

Our counsellors will help you:

• Protect your rights when dealing with creditors
• Relieve you of your current stress
• Regain control of your financial situation
• Make a fresh start
• Develop good financial habits for the future

Myth 4: I won’t be able to borrow again after declaring bankruptcy.

Let us be clear here: bankruptcy won’t prevent you from borrowing again in the future. By letting you have a start fresh, it gives you the opportunity to rebuild your credit. You should expect to get there in two to three years. And you won’t be going through the process alone; our counsellors will be there to tell you what you need to do. This includes:

• Having good financial habits. This means having stable employment, respecting your budget, paying your bills on time, paying off your entire credit card balance each month and saving.
• Immediately taking out a small loan from a financial institution and putting it into a guaranteed investment certificate (GIC). When you finish repaying your loan, you’ll be able to use the money in your GIC. In the process, you’ll also have shown your bank that you can manage credit and are a trustworthy borrower.

You credit will rebuild with time. It’s likely you’ll even be able to buy a home!

Myth 5: I won’t be able to have another credit card after declaring bankruptcy.

This is false. After your bankruptcy, you can apply for a secured credit card. It’s a good way to rebuild your credit.

The bank will keep a deposit equal to your credit limit ($500, for example) as security. After a year, you can ask to have your deposit back or increase the limit on the card.

Of course you need to make sure to pay the full balance each month.

Myth 6: If I declare bankruptcy, I’ll lose my RRSPs.

This isn’t true. All the money you have contributed to your RRSPs, except for the contributions made in the last 12 months, is protected from creditors when you declare bankruptcy. This means no one can take your retirement pension!

Myth 7: Everyone around me will know that I am bankrupt.

Don’t worry, people around you won’t know that you’ve filed for bankruptcy unless you decide to tell them. The only persons (or organizations) that will be notified are:

• Your creditors: They will be notified by your trustee, most often, by email. They must then stop all ongoing seizure and recovery procedures.
• Revenu Québec and the Canada Revenue Agency: The two government bodies will be notified of your bankruptcy, regardless of whether you owe them money.
• Your employer: Your employer will only be notified if your creditors have seized part of your wages. Your trustee must notify your employer to stop this seizure. However, this is to your benefit, as you will be receiving your full pay again.
• Lastly, credit agencies will also be notified about your situation.

In most cases, a personal bankruptcy is confidential, since, unlike a business bankruptcy, it does not have to be published in a newspaper. It is entered in public archives, but it is very rare that someone will ask to see it, particularly since there are costs involved.

Myth 8: I can’t include my tax debts in a bankruptcy

In fact, yes you can! You can include your tax debts in a bankruptcy, in particular:

• Individual taxes;
• GST, QST, HST
• Source deductions (including debts under the control of a director)

Tax debts are cancelled once you receive your discharge from bankruptcy. The same applies for a consumer proposal.

Myth 9: Will I have a criminal record if I go bankrupt?

You will not have a criminal record if you file for bankruptcy.

However, you must be honest throughout the entire bankruptcy filing process or you may be subject to fines or imprisonment.

• You must be transparent about your financial transactions before, during and after you declare bankruptcy.
• You must not lie during an audit.
• Under no circumstances should you conceal assets or debts or hide documents.
• You cannot obtain credit as a result of a false statement.

Additionally, you can still leave the country if you declare bankruptcy. However, being abroad when you asked to report to a mandatory meeting with your creditors may affect your ability to obtain a discharge from bankruptcy. You must also be able to provide a statement of your income or your tax information when requested.

Myth 10: My spouse will automatically be bankrupt if I file for bankruptcy

As long as you do not have joint debts, your spouse has nothing to worry about. However, if you do have joint debts, your spouse becomes responsible for all of your joint debts.