Why You Shouldn’t Write Off Bankruptcy As An Option

As a Licensed Insolvency Trustee (sometimes referred to as a Bankruptcy Trustee), we regularly advise individuals on their options for dealing with overwhelming debt. Sometimes, it becomes clear that the only viable option is bankruptcy, but this is often a hard pill for the individual to swallow. There's major stigma associated with the word “bankruptcy”, but this is a symptom of the real issue: the misconception that bankruptcy permanently ruins a person's financial future.

While bankruptcy does have significant consequences, it is not necessarily the end of an individual’s financial life. Here are some facts that challenge the misperceptions about bankruptcy:

1. The reason federal laws exist allowing people to file a bankruptcy is to allow for a financial re-set when a situation has become unsustainable. This doesn’t just give the individual involved a fresh start, it serves the national interest by reducing reliance on public assistance and allowing people a chance to contribute positively to the economy in the future.
2. Bankruptcy is meant to be rehabilitative. Not only does it allow people relief from the debt that makes it impossible for them to pursue important financial goals, it gives them an opportunity to access financial counselling from a trained professional. Most people learn from the mistakes that might have led them to bankruptcy and make meaningful changes.
3. The negative impact on an individual’s credit rating is temporary, and it will be possible to obtain credit (even at good interest rates) again. A first-time bankruptcy will stay on an Albertan’s credit report for six years after they’re discharged, but this doesn’t necessarily mean they won’t get credit during that time. Lenders look at many factors, and they can be convinced to put their trust in a person who has been bankrupt but has a good financial outlook.
4. People don’t lose all of their assets in bankruptcy. Provincial laws in Alberta allow individuals to keep certain assets that are deemed to be important not only for survival (like clothes, food, and personal effectgs), but also to take care of themselves and carry on working while in bankruptcy and beyond (such as a car or home that's not highly valuable, certain tools of the trade, and RRSPs).
5. Bankruptcy doesn’t necessarily harm your employment prospects. Unless you require bonding, handle trust funds, or are a corporate director, it’s unlikely that your bankruptcy will directly impact your employment. And while bankruptcy can impact your reputation, sometimes indirectly impacting your employment, that’s only if people find out about it. Most bankruptcies aren’t advertised publicly and aside from your creditors (who will get notice of your bankruptcy), most people will never hear about it unless you tell them. You’d probably be surprised to learn that you already know some people who’ve been bankrupt.

Bankruptcy isn’t usually (and shouldn’t be) the first choice for dealing with debt. However, when alternative options, such as consolidation loans, consumer proposals, or payment plans aren’t feasible, it is an option you should at least be willing to consider. The best way to know which options are feasible for you is to contact a Licensed Insolvency Trustee for a consultation.

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. 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.