Not all of us are born with the financial acumen to remain debt free for life. Sometimes we simply want more than we earn or just want to ‘keep up with the joneses’ or try to impress our spouse or other people close to us and before we know it, we have accumulated debts that we are quite simply not able to pay back.
Alternately, there may be a medical emergency or bad business decisions that just might lead to looming insolvency.
Bankruptcy in Canada
Stripped of all the hyperbole, the core idea behind personal bankruptcy in Canada is that you essentially have to surrender all your property to a ‘licensed insolvency trustee.’ This is done to get rid of all your debts. The trustee would help to ensure that your property is sold off and its proceeds are used to help your creditors recover their investments. Depending on which province you live in, certain bare essentials may be left to you so that you are able to continue living a reasonably normal life. The trustee will be responsible for making sure that neither you nor your creditors are treated unfairly.
If you were to go bankrupt in Canada, it is good to know that it will not have any direct financial repercussions on your loved ones such as husband, wife or common law partner etc. This is because your loans and your property are your very own (unless any loan is jointly owned or a close family member is a guarantor of your loan). This is why only ‘your’ personal property would be taken into consideration when you file for personal bankruptcy.
The Surrendering of Property
This is perhaps one of the worst things about bankruptcy. Most of your property may well be confiscated and sold off and its proceeds given to the creditors. To see your life’s hard work and assets being handed over to others is not an easy pill to swallow. But, look at the bright side. Your creditors will not continue to hound you anymore.
It is unwise to think that bankruptcy would not affect your credit ratings. However, it is not the end of the world when it comes to applying for fresh credit. In fact, you will continue to receive credit card and loan offers in your mail (however, the fine print would have changed and they would be charging you more interest than ever before).
Yes, bankruptcy has a severely negative impact on credit ratings, however, if the alterative is that you are being mercilessly hounded by creditors and you are lagging behind on almost all your monthly payments, then it is an axiomatic assumption to realize that your credit ratings are going through a downward spiral in any case.
Remember, bankruptcy is not the end of the road at all. Hundreds of thousands of Canadians go through it every year and simply restart their lives all over again. In time, both your credit ratings as well as your property will be back to the position they were before.