Don't Trust ChatGPT For Advice About Bankruptcy
As a Licensed Insolvency Trustee, it's safe to say I know a lot about bankruptcy. But most people considering bankruptcy are starting out with very little knowledge on the subject. A new tool, ChatGPT, has come out that can be very useful for providing information on a topic, so it would make sense for some people to start there for information about bankruptcy. But unfortunately, that information just isn't good enough to rely on, as I'll show in this blog post.
Although I won’t pretend to know exactly how it works, it’s my understanding that ChatGPT is essentially a search engine. When you ask it for something, it scours the internet for information relevant to what you’re looking for, then summarizes it in a confident and surprisingly articulate manner. Sometimes, it provides an excellent and accurate summary of the topic. But sometimes it doesn’t. That’s not ChatGPT’s fault – it’s just relying on publicly available information and assuming that sources that appear to be valid have supplied the internet with correct information. But if you’ve spent more than 30 seconds on the internet, you should know that some of the information there is incorrect or even fake. So when ChatGPT uses those sources to give you an answer, that answer might not be correct even though it seems legitimate.
Insolvency is one of those areas where a lot of what you find online is incorrect or misleading. So I find it interesting to ask ChatGPT about insolvency. The answers always sound good, and some of the content is correct, but there are almost always errors in the information, and even when it’s correct, it’s often out of context, which makes it misleading.
In a recent test, I asked ChatGPT this question: “when is an individual eligible to file bankruptcy in Alberta?” Below I’ve provided the answer, with my comments sprinkled in to show you where ChatGPT gets it right, and where it gets it wrong.
ChatGPT's response:
As an AI language model, I don't have access to real-time information, and bankruptcy laws can vary and change over time. As of my last update in September 2021, I can provide you with some general information about bankruptcy eligibility in Alberta, Canada. However, I highly recommend consulting with a licensed insolvency professional or a qualified bankruptcy attorney in Alberta to get the most up-to-date and accurate advice for your specific situation. [This is a great paragraph, though this sort of disclaimer didn’t show up in most of my previous requests, so it may be a recent update to the program.]
In Alberta, individuals may be eligible to file for bankruptcy if they meet certain criteria:
1. Residency: The person must be residing in Alberta or have a significant connection to Alberta. [This is not exactly right. Eligibility is not determined by province, but federally. And residence is not required. It is only necessary that you either “reside, carry on business, or [have] property” in Canada. That said, the bankruptcy must be filed in the “locality of the debtor”, which is usually where you reside. That doesn’t necessarily mean you have to be physically present there when you make the assignment, but you’ll have to meet with a Licensed Insolvency Trustee (LIT) who is licensed in that region and can file it there.]
2. Debts: The individual should have unsecured debts (e.g., credit cards, personal loans) that they are unable to repay as they become due. [This isn’t wrong, but it’s not right either – it’s… incomplete. To be eligible to make an assignment in bankruptcy, you must:
- have a certain amount of debt (which we’ll get to later) that is “provable” under the Bankruptcy and Insolvency Act. Unsecured debts such as the examples supplied are typically provable claims, but thre are many other types that can be included. For example, tax debt can be a provable claim.
- be “for any reason unable to meet [your] obligations as they generally become due" or have “ceased paying [your] current obligations in the ordinary course of business as they generally become due” or have insufficient property (at a fair valuation or sold in a fairly conducted legal process) to enable payment of all of your obligations (including those that are not yet due).
In other words, ChatGPT's anwer here is oversimplified.]
3. Minimum Debt Threshold: There is a minimum amount of debt required to be eligible for bankruptcy, which can vary over time. As of my last update, it was $1,000, but this may have changed since then. [$1,000 is correct, though it’s worth noting that all $1,000 of it must be debt “provable as a claim” under the Bankruptcy and Insolvency Act, which isn’t always a simple determination.]
4. Insolvency: The individual must be insolvent, meaning that their liabilities exceed their assets. [this is really just a duplicate of the comment in #2 that you must be “unable to repay as they become due”, though the use of the term “insolvent” is more accurate, as it is possible to be keeping up with all of your payments as they are due but still be insolvent (for example if you could not pay off the whole debt balance if you liquidated all of your assets, you are likely insolvent).]
Before filing for bankruptcy, individuals are encouraged to consider other debt relief options, such as consumer proposals or debt consolidation, and to seek advice from a licensed insolvency trustee (formerly known as a bankruptcy trustee) to understand the best course of action for their specific financial situation. [This is very good advice, as LITs can apply their knowledge and experience to determine if eligibility is an issue based on a detailed review of the debtor's situation. They can also suggest other options that may work better for the individual (and their creditors) than bankruptcy].
Remember, bankruptcy has significant long-term consequences, and it's essential to be fully informed before making such a decision. Seeking professional advice is crucial to understand the potential impact on your finances and assets. [Again, this is a good point. I would add that the only professionals licensed to provide bankruptcy services are Licensed Insolvency Trustees, so caution should be used when considering advice from others such as debt consultants who may not have the training or experience to give better answers than ChatGPT.]
In addition to my comments above, I will point out that ChatGPT missed some critical information that I believe is relevant to the question asked. Some examples:
- One requirement for eligibility is that you are not currently already bankrupt. If you are insolvent and seeking a bankruptcy filing but never got around to completing an old bankruptcy, you cannot make a new bankruptcy filing.
- Though a person may be eligible to make an assignment in bankruptcy, it may not be feasible for practical reasons:
- Bankruptcy is not meant to be available as a tool for abuse of process. If the individual is not an “honest but unfortunate debtor” they likely won't be able to get relief from their debt via bankruptcy.
- Though a debt may be “provable as a claim”, it may not be dischargeable via bankruptcy. Examples would be recently-advanced student loans, certain child support payments, or debts resulting from fraud. So if you have only these types of debts, you may be eligible to file a bankruptcy but there may be no point in doing so.
- Though there is no age limit, a young child incapable of consenting to a legally enforceable debt would likely be determined to be ineligible to file a bankruptcy.
- Even if bankruptcy is a feasible option, it may not be the best option. For example:
- If an individual is creditor-proof (ie. they have no assets or income that their creditors could obtain through court action) they may determine that there is no benefit to filing a bankruptcy.
- Sometimes, based on a review by the Trustee, it is clear that the payments that will be required in bankruptcy are unaffordable for the individual, meaning they won’t be able to comply with their bankruptcy requirements and get discharged from the process. In that case, there might be better options, such as a Consumer Proposal, which allow them to spread payments out over a longer period of time.
- Bankruptcy can occasionally impact a person’s employment, such as individuals who are required to be bonded or those who act as a director of a corporation. They may need to consider other options.
It's understandable that people want to do their research about bankruptcy before reaching out to a Licensed Insolvency Trustee. We recommend if you're looking to the internet for information that you start with the Office of the Superintendent of Bankruptcy's website, or websites belonging to a Licensed Insolvency Trustee, as they will have the most reliable information. However, the best way to get information about whether bankruptcy is right for you is to schedule a free consultation with a Licensed Insolvency Trustee that can gather information from you so that the options can be discussed within the context of your unique situation.
Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming debt, and where appropriate we support them through an insolvency filing and help them get set up for future success. If you'd like some advice, please reach out to us.
Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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Frequently Asked Questions
Licensed Insolvency Trustees (or LITs) are the only people who can provide bankruptcy or Consumer Proposals as an option for dealing with your debt. They are uniquely qualified to provide these services and give you advice about your debt. For more information, see our blog post: What is a Licensed Insolvency Trustee?
Not at all. Bankruptcy is one of the services we provide but it is not the best solution for everybody. In fact, more often than not we recommend a solution other than bankruptcy. A Licensed Insolvency Trustee is simply the best resource for reviewing your options, as we are highly trained, regulated by the government and our professional association, and well-versed in a variety of options. Contact us if you'd like to start a conversation about your options.
Often no one finds out unless you tell them. Most bankruptcies do not have to be advertised in the newspaper and, while any bankruptcy filing goes on the public record, someone would have to search for it (and pay a fee) to find that record.
Typically the only impact on your spouse occurs if they have co-signed any of your debt. In that case, if you are not able to pay the debt your spouse may become fully responsible for it. Often, people bring their spouse along to our consultation meetings, in which case we are able to discuss their situation as well, and the impact your options might have on them. Contact us to set up a meeting.
Not likely. Here in Alberta, there are laws that exempt certain assets from seizure by your creditors, and that includes bankruptcy. Depending on your situation, you may not lose any assets at all - many don't. For more information, check out our blog post entitled: What I Wish People Understood About Bankruptcy | Do you lose all of your assets in bankruptcy?
We would be happy to set up a meeting to discuss the extent to which your assets may or may not be exempt in bankruptcy.
There are several factors which must be considered to determine which options are feasible for you and to select the best one, including:
- What assets do you own?
- Who do you owe money to and how much?
- What sort of income are you bringing in and how predictable is it?
- What is your family situation?
- Your personal goals and priorities
Check out our Consumer Proposal and Bankruptcy pages for information about each of these options and their pros and cons. For more indepth information about these and other options, we've provided a plethora of information on our blog.
For a fulsome review of your situation and advice about which option is best for your specific circumstances, contact a Licensed Insolvency Trustee for a free no-committment assessment.
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