Myth No. 2 – Anyone can do it

Public perception seems to be that anyone can go bankrupt. While bankruptcy is a viable option for some people, it is not a free service or the right solution for everyone. Depending upon your income level and the assets that you own, it can be a very expensive way to resolve your financial problems.

Myth No. 3 – It’s the only option you have left when your finances get really bad

There are alternatives to bankruptcy which include Debt Management Programs, Orderly Payment of Debt, Consolidation Orders (depending on your province), Informal Consumer Settlement Proposals as well as formal Consumer Proposals. The right solution will depend on an individual’s specific situation. If someone is interested in finding out about alternatives to bankruptcy, they should speak with a Credit Counsellor from a properly licensed and accredited Credit Counselling Agency.

Myth No. 4 – All debts are included in a bankruptcy

Not all debts are included in a bankruptcy. Debts that are fully secured like a mortgage or car loan cannot be included in a bankruptcy. Student loans are generally excluded in a bankruptcy if they have been outstanding for less than 7 years. This rule is in place to prevent people from abusing the student loan system.

Myth No. 5 – You lose everything

When you go bankrupt you don’t literally lose everything. Most provinces allow you to keep your clothing and basic household furniture as long as their value doesn’t exceed certain provincial limits. You are also allowed to keep necessary medical and health related equipment. Some provinces have provisions that allow you to keep a modest priced vehicle and your home as long you don’t have a lot of equity in them (your equity is the market value of an asset minus your loan) as well as the tools of your trade that you need to earn a living as long as they do not exceed a certain amount.

Myth No. 6 – Only poor people go bankrupt

Financial problems impact people with modest incomes as well as high income earners. Generally speaking the more you earn, the higher the debt level you are likely to have. According to a Harvard Law School publication, 90% of people who go bankrupt are middle class. So it isn’t a lower class thing—it’s a middle class problem. Financial problems can impact anyone if they are not careful with their finances.

Myth No. 7 – You can max out all your credit cards and then go bankrupt

Those who think that they can take advantage of the system by maxing out all their credit cards and then declare bankruptcy to escape their creditors are mistaken. Creditors can successfully oppose a person’s application to be discharged from bankruptcy if they can prove that the person fraudulently misused the credit prior to bankruptcy.

Conclusion

Our bankruptcy laws are designed to provide legal protection for people in severe financial hardship and to give them an opportunity for a fresh start. Bankruptcy should always be looked upon as a solution of last resort. You owe it to yourself to carefully explore all of your options and the implications to determine what’s right for you. If you are not sure where to start, contact a non profit credit counselling agency and ask to speak with a Credit Counsellor for help.