How Bankruptcy Can Help You Achieve Financial Well-Being

How Bankruptcy Can Help You Achieve Financial Well-Being

What comes to mind when you think about financial well-being? Perhaps budgeting or net worth… maybe retirement savings. Probably not bankruptcy.

When people approach a Licensed Insolvency Trustee (sometimes referred to as a Bankruptcy Trustee) to discuss their options, they’re not in a state of financial well-being, not by a long shot. But they want to get there, which is why they’re looking for options to get out from under their overwhelming debt.

Bankruptcy isn’t always the best option for doing that. In fact, there are several other options that should be considered first. But when bankruptcy is the right option, it can help improve a person’s overall financial health in a number of ways:

Fixing your balance sheet

When a person (or company) has significant debt, their debt may be significantly higher than the value of their assets. This means they have negative net worth.

If they were to immediately liquidate everything, it wouldn’t be sufficient to pay off the debt, which means there are limited options if they want to eliminate the debt. And lenders are much less likely to provide new credit to someone who is already in this deficit position.

Bankruptcy may involve liquidating assets, but it also eliminates the debt that’s left over (with a few exceptions), so that the balance sheet can be brought back into balance. Typically, after a bankruptcy, a person will end up with a neutral net worth or a slightly positive net worth (because there are some assets they’re allowed to keep).

Balancing your budget

When a person (or company) is drowning in debt, they often can’t afford their ongoing debt payments. This means they either have negative cash flow – they’re getting further in the hole every month by using new debt to cover expenses and debt payments – or they’re not making the required minimum payments at all. Either way, with interest continuing to accrue, their debt situation is getting worse over time.

Upon filing a bankruptcy, debt payments cease and interest no longer accrues. There will usually be a requirement to make payments to the Trustee, but those are not based on the amount of the debt, interest rates, or the lenders’ payment schedules – it will be based on various aspects of the bankrupt person’s financial situation, most commonly their income.

Although the budget will be extremely tight during bankruptcy due to the required payments (and possibly after bankruptcy, if income is low or expenses are high), the elimination of debt payments usually means that achieving a balanced budget is easier.

Financial education and literacy

A fundamental aspect of Canadian bankruptcy law is that it is rehabilitative. In addition to providing relief from debt, the goal is to allow individuals to emerge with a better chance of financial success and a lower likelihood of accumulating too much debt in the future. To assist in this goal, it is a requirement for individuals who’ve filed bankruptcy to attend two financial counselling sessions with a qualified financial counsellor.

Budgeting, financial goal setting, proper use of credit and other relevant topics are addressed in the financial counselling. This gives the individual tools to develop a better relationship with money and debt by moving from the chaos and/or avoidance that overwhelming debt causes, to a more careful yet optimistic approach.

A fresh start

Many times, individuals who’ve decided to make a bankruptcy filing have already made huge strides in improving their financial wellness. They’ve identified where they went wrong and taken steps to ensure it won’t happen again, including connecting with community, government, or professional assistance resources. They’ve examined their budgets and cut back wherever possible. They’ve got a solid plan for the future. They just can’t make meaningful progress until they deal with the burden of the impossible level of debt hanging over them, which continues to absorb all of their resources and attention.

Bankruptcy allows an opportunity to start over, to make better decisions with the knowledge that has been acquired and the lessons learned from past mistakes. This makes it possible to achieve goals that would have been impossible while managing costly and excessive debt.

A holistic approach to financial well-being addresses multiple interconnected aspects of your financial life. While bankruptcy won’t fix all of these aspects overnight, it can prepare the foundation to allow for eventual success.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review various options, including bankruptcy, for dealing with overwhelming debt. If you'd like to explore these options, 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

Bankruptcy is a legal way to get some or all (depending on your financial situation) of your debt forgiven when you can't pay it. For more information, see our bankruptcy page or contact us.

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.

There's a common misconception that if someone becomes bankrupt, everything they have gets sold to pay creditors and they're left with nothing. 

The truth is, people often don't lose their assets in bankruptcy for one or more of the reasons we've discussed in What I Wish People Understood About Bankruptcy: Will I Lose All Of My Assets? :

There are many factors unique to your situation which must be considered to determine what you could keep in a bankruptcy. To be sure, the best way to find out is to contact a Licensed Insolvency Trustee for a free no-committment assessment.

Sometimes it helps to know how much your creditors would get in a bankruptcy, as this can help you figure out what a fair settlement with your creditors looks like. The amount your creditors could expect to receive if you made a bankruptcy filing is very much dependent on your situation.

A Licensed Insolvency Trustee will review your assets, debts, income, and family situation, while considering the applicable provincial laws about exempt assets, in order to determine what impact bankruptcy would have on your creditors. Be careful taking advice from anyone else about bankruptcy – only a Licensed Insolvency Trustee can provide bankruptcy filing services, so they have the training and experience to provide information you can rely on. 

For more details on the features and benefits of Bankruptcy, visit this page or contact us.

Any debt that has been incurred after the date you first made your bankruptcy filing will not be released even if you get a discharge from your existing bankruptcy. There may be other options for dealing with the new debt, but if you need to make another formal insolvency filing like a proposal or bankruptcy, you will have to get discharged from your existing bankruptcy first, as discussed in Getting Back On Track: How Not To Stay An Undischarged Bankrupt. Reach out to us if you want to understand your options.

Reach out to us. You can make an inquiry directly from our website by clicking here, or you can call or text us at 1-403-899-3890. We will respond quickly, and work with you to find a good time for the meeting.

  • Typically, LITs focus on either consumer solutions or corporate solutions.
  • Consumer solutions include Consumer Proposals and bankruptcy.
  • Corporate solutions include Division I Proposals, bankruptcy, receivership, and plans under the CCAA (Companies Creditors Arrangement Act).

Charla Smith has experience delivering all of these options, so if you would like information on any of them, please contact us to find out more.

No, a Licensed Insolvency Trustee is an impartial facilitator who communicates with all parties to make sure the process is transparent, and that everyone is following the required rules so that the process is orderly and predictable.


With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt. 

Contact us today at 1-403-899-3890‌ for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.

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