The Top 5 Pros and Cons of Bankruptcy

The Top 5 Pros and Cons of Bankruptcy

Bankruptcy is a legal process intended to help people who are unable to pay their debt, and it can be a valuable tool for individuals facing financial hardship, particularly when they have overwhelming debt. However, like any major financial decision, bankruptcy has pros and cons that must be considered when making an informed decision about whether it’s the right choice.


  1. Relief from debt

The most significant advantage of bankruptcy is that it can provide relief from unmanageable debt (meaning you’re no longer responsible for paying it), allowing you to start fresh financially.

  1. Protection from creditors

When you declare bankruptcy, you get an automatic stay of proceedings, which means that your creditors are no longer allowed to pursue collection actions against you. This provides you the breathing room needed to focus on complying with your bankruptcy duties so that you can obtain your discharge from the bankruptcy and then focus on rebuilding your financial life.

  1. Financial education

As part of the bankruptcy process, you’re required to undergo financial counselling. This is a great opportunity to work with an experienced professional to level up your knowledge about budgeting and managing credit, which will help you avoid future financial difficulties.

  1. Quicker debt resolution

The bankruptcy process is often shorter than other debt relief processes, such as debt consolidation, credit counselling, or even a Consumer Proposal. Although bankruptcy usually remains on your credit report longer than other options, a speedy discharge from the process may allow you to start focusing on actions that will rebuild your credit score sooner than those options.

  1. Opportunity for a fresh start

Bankruptcy can be a difficult and emotional process, but it can also be an opportunity to wipe the slate clean and build a more secure financial future.


  1. Damage to credit score

One of the most significant disadvantages of bankruptcy is that it can have a severe impact on your credit score. It’ll stay on your credit report for up to seven years, which can make it challenging to obtain credit during that time. However, it is possible to rebuild your credit score after bankruptcy. And often those who are facing bankruptcy are already unable to obtain affordable credit due to a poor credit score.

  1. Public record

Bankruptcy is a matter of public record, which means that anyone can access certain information about your bankruptcy. This can be embarrassing and uncomfortable. That said, it’s rarely publicly advertised, so in most cases someone would likely have to go looking for the information (and pay applicable search fees) to get it.

  1. Loss of assets

You may be required to surrender some of your assets to the bankruptcy trustee, including your home, car, and other valuable possessions. However, in many cases, individuals find that most of their assets are protected and/or they are able to keep up with payments to secured lenders (like a mortgage or car loan) to keep assets that have minimal equity. The trustee may also give you the option of repurchasing assets you’d like to keep.

  1. Limited credit options

After filing for bankruptcy, you will not be able to access credit until you are discharged from the process. Even then, your credit options will be limited for a while due to the impact on your credit score. That said, existing secured lenders (like mortgage or car loan) usually continue to work with you, as those debts are not affected by bankruptcy. And there are some alternatives, such as a secured credit card, which you may be able to apply for.

  1. Emotional toll

It’s important to recognize that filing for bankruptcy can be emotionally taxing. Just getting to the point of calling a Licensed Insolvency Trustee usually involves a lot of guilt, stress, and shame. However, most people that make a bankruptcy filing report feeling a weight lifted off their shoulders once they take this crucial step to resolve their financial difficulties, as it allows them to focus on a better financial future.

Bankruptcy is often misunderstood as an entirely destructive and shame-filled event. In reality, while bankruptcy comes with some significant consequences, it provides a lifeline for individuals with overwhelming debt. Understanding the pros and cons of bankruptcy is critical to making an informed decision about whether this option is right for you.

Charla Smith & Company Ltd. is a Calgary-based Licensed Insolvency Trustee serving the southern Alberta region. We regularly help individuals review their options and determine whether bankruptcy is the right choice. If you would like to review your options, contact us for a free, confidential consultation.

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

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.

Check out our Consumer Proposal and Bankruptcy pages for information about these options and their pros and cons. For information about other options, check out our financial advice and information about community supports on our blog posts. 

For more information or an opinion on which option is best for your specific circumstances, 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 laws, 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.

Once your Trustee gets its own discharge, your creditors' rights to collect the pre-bankruptcy debt are revived, so you are no longer protected from asset seizures, wage garnishees or any other collection action. You also remain responsible to disclose the fact of your bankruptcy in situations where you are requesting credit, and your bankruptcy will continue to show up on your credit report. Because of this, you may find it hard to get credit when you need it, or you may find that the interest rate you are offered is very high, making it difficult to buy assets.

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.

Nothing. We offer free consultations to anyone looking to review their options for dealing with their debt. If we decide together that one of the services we provide is the right option for you, there will be payments you need to make in connection with that, but that will occur only after you have made a decision and signed the formal documents.


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, confidential, no-commitment meeting, and let us guide you to regaining your financial footing.

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