Whenever we hear the word bankruptcy, an image of an irresponsible individual struggling to control his budgets or pay his debts comes to mind. Bankruptcy is often considered a disgrace. It is a word people want to stay away from, as far as they can.
A number of people file for bankruptcy as they are unable to control or find themselves in need of financial constraints. But that’s not something to feel ashamed about.
The article focuses on some of the most common myths about bankruptcy that demands to be diminished.
Myth of losing everything you own: True to some extent, but not entirely.
Creditors will take most of your assets because they expect their payment in some form, but you will be allowed to keep the legally secured ones along as long as you keep making the installments on leased goods. RRSPs and RRIFs are often exempted from bankrupt rules
Different territories apply different limits on bankruptcy policies. Some also allow you to keep your valued possessions such as pets, furniture clothing etc. whereas in some regions, these assets are divided equally among the creditors.
Myth that people will know that I am bankrupt: The ultimate fear why people don’t file for bankruptcy is that everyone will come to know about it ruining our image.
Although bankruptcy filings are public, they are not published in the newspapers if your assets are minimal. You will only receive through a notice via email. So unless you yourself tell all your friends and family, they won’t have a clue. Most importantly, the reason for filing for bankruptcy must be your financial safety rather than what the world is going to think of you.
Myth that credit rating will be ruined forever: That is absolutely false. The concept that bankruptcy will destroy your credit rating forever is not true. You can have credit ratings as early as nine months after of the discharge. Bankruptcy filed will show on your credit report of maximum six years but that cannot stop you from applying for credit cards or loans only after nine months and can be re-established.
All your debts will be erased: You can only wish that were true. However, the following debts are exempted from bankruptcy i.e. these still have to be paid.
• Car Loans
• Spouse and child support
• Student loans
• Court fines and Assaults
Myth that my spouse credit rating will be destroyed: Credit ratings of your spouse will only be affected if he/she co-signed your loans and credit cards. If this is not the case, your spouse shall not be dragged into the scenario. Creditors have no legal right to go after your spouse if you have bankrupted. But on the other hand, the spouse must pay all the their due debts
Filing for liquidation is an important issue. It has to be taken after viewing all available options. However, the myths suggesting bankruptcy filing is shaming yourself or showing how incompetent you are when it comes to managing your financials, are not true at all. In fact, it is the opportunity to start with a clean slate.