What I Wish People Understood About Bankruptcy | Does it make you a bad person?

Bankruptcy Stigma

When considering bankruptcy as an option to deal with debt, people often feel shame about the financial situation they’re in, and they beat themselves up about being bad with money. They also tend to worry about what others will think of them. However, in most cases, the truth is that people who end up filing a bankruptcy honestly want to pay their debts, and in many cases, their history indicates they’re actually quite skilled with budgeting and saving money.

Misconceptions about the reasons people file a bankruptcy

Some people still view bankruptcy as a dishonest means of getting out of your obligations. But this isn’t what bankruptcy is about. In fact, Canadian bankruptcy laws are tailored to provide relief for the “honest but unfortunate debtor” and have been designed specifically to deny dishonest or exploitative people that relief. For example, section 178 of the Bankruptcy and Insolvency Act, which governs bankruptcies, lists a number of debts that cannot be discharged by a bankruptcy, including debts obtained as a result of fraud or misappropriation, and those arising as a result of certain criminal or civil offences.

Long ago, civilized society recognized that when a person has more debt than they could possibly hope to pay back in the foreseeable future, there must be a way to re-set their financial situation so that they can go on to live as contributing members of that society. This is why the Bankruptcy and Insolvency Act, which governs not only bankruptcy but also other formal insolvency proceedings, exists.

Most people who come to see us are honest but unfortunate, and they can be some of the most diligent and considerate people you’ll meet. They feel terrible about the prospect of not fully re-paying their debt, and they wish things had turned out differently. So if they aren’t bad people, they must be terrible with money, right? Not necessarily.

Some people who make a bankruptcy filing have been extremely unlucky, having suffered a series of misfortunes including health problems, unemployment, divorce, addiction, and fraud which would have drained the finances of most people. Before they consider bankruptcy, they have often tapped out savings and sold or mortgaged assets in order to pay the debt, but it simply wasn’t enough.

Others experience more of a slow burn of insolvency due to low income. They are often very good at budgeting and stretching a dollar, and have taken pride in meeting their obligations despite their low income for decades. They often do not have family support and have never been able to build a sufficient financial cushion so that when an unexpected event happens, they have few options other than taking on debt.

We also meet a lot of business owners, some who have successfully managed a business and employed many people for decades. Unfortunately, sudden massive changes in their business’s industry or macroeconomic events sometimes can lead to cash flow problems for the business, and often the individuals sink their life savings into propping up the business. When this isn’t enough and the business fails, they often find themselves personally liable for the business’s debts.

The reality is people who file bankruptcy are often just like you. They span every demographic, and they always have a story that explains how they got there.

Delaying getting help

Too many people delay coming to see a Licensed Insolvency Trustee, spending months, years or even decades struggling with their debt, because they are worried about how it will look or how it will feel to admit they can't pay their debt. I wish people knew it didn’t have to be that way.

Charla Smith & Company Ltd. is a Calgary-based Licensed Insolvency Truste, serving the southern Alberta region. We regularly provide advice to individuals who are considering bankruptcy. If you would like advice on options for dealing with your debt, contact us for a free, no-commitment 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.