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Sault Ste. Marie, Ontario
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The Truth About Personal Bankruptcy: Debunking 5 Myths

Many people of Sault Ste. Marie face their greatest financial challenges in January. Due to the current economic uncertainty in our community, heightened by the insolvency of major employer Essar Steel Algoma, people are struggling more than ever this year. Credit cards are overloaded, lines of credit are at their maximums, and individuals have run out of options for paying their bills.  Faced with such significant problems, struggling Sault families need to be in the know in order to protect themselves.  This blog will answer the question “What is a Trustee?” and it will debunk the myths surrounding personal bankruptcy and the impact of declaring bankruptcy.

What is a Trustee? 

A Trustee in Bankruptcy (also known as a Bankruptcy Trustee) is a person licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer bankruptcy proceedings. A Trustee in Bankruptcy can also provide debt counselling, negotiate settlement agreements on your behalf, and help you make a consumer proposal to your creditors to consolidate debt and avoid bankruptcy.  A Trustee is the only debt help professional that can stop legal action being taken by creditors. You must use the services of a Trustee in order to declare bankruptcy or file a consumer proposal.

People often make the mistake of assuming that the only debt solution that a Trustee will offer them is personal bankruptcy. During the initial assessment process, a Trustee looks at all options available and focuses on alternatives to declaring personal bankruptcy. The personal bankruptcy option is always the last resort. Settling with creditors, often using a consumer proposal, is the preferred option as it allows for repayment of debt based on individually tailored plans to suit specific family income and expense situations.

However, if personal bankruptcy is the best solution it is important to know that lots of myths exist about declaring bankruptcy. These are the top fears and related falsehoods associated with declaring personal bankruptcy that I have encountered:

Myth #1: If I declare personal bankruptcy, I will lose everything.

You will not lose everything when you declare personal bankruptcy.  In Ontario, effective December 1, 2015, you are allowed to keep necessary clothing (no limit), household furniture and appliances valued up to $13,150 (using used condition values), a motor vehicle valued up to $6,600, and $11,300 in tools of your trade.  There is also a new exemption for principal residences having equity of less than $10,000. Other assets often exempt from seizure include locked-in pensions, RRSPs and RRIFs. You can also keep your home and automobile if they are fully mortgaged.

Myth #2: Everyone will know that I have filed for personal bankruptcy.

Although bankruptcy is a matter of public record, the ability to access the records is not straight forward and has registration and costs associated with gaining access.  Advertisement of the bankruptcy in the newspaper is very rare and is only a requirement in a larger bankruptcy.  So unless you tell others that you have declared bankruptcy, it is highly unlikely that they will know.

Myth #3: My credit rating will be ruined forever if I file personal bankruptcy.

One concern many people have about declaring bankruptcy is the negative effect it will have on their credit rating. In Ontario, credit reporting agencies Equifax and Trans Union report the fact that you declared bankruptcy for six years after your discharge from bankruptcy. However, chances are good that prior to going bankrupt, if you have been late paying your bills or are in collections then your credit rating is probably similar to a bankruptcy status. Both credit counselling agency debt management plans and consumer proposals are also reported in your credit report for a three year period after completion of the plan or proposal.

Myth #4: I will not be able to get credit in the future if I file personal bankruptcy.

The bankruptcy will report on your credit file for six years after discharge for a first time bankrupt. Fortunately, there are ways to rebuild your credit after filing bankruptcy. For example you can obtain a secured credit card which will provide you with the convenience of having a credit card without the risks. A secured credit card requires that you preload your card with a cash deposit, which then becomes your line of credit. The positive payment history of the secured credit card is reported in your credit file and helps rebuild your credit. There are lenders that work with those that have declared bankruptcy to assist them in, for example, obtaining a car loan after bankruptcy.

Myth #5: Filing for personal bankruptcy will impact my spouse.

A bankruptcy filing relates specifically to the person declaring bankruptcy, so it will not be reported in your spouse’s credit file. Creditors cannot pursue your spouse for debts that are in your name only. However, if your spouse has cosigned or guaranteed debts that are part of your bankruptcy then your spouse becomes fully responsible for those debts. In this case, if your spouse maintains the payments on those debts, as agreed to, then your spouse’s credit file is not negatively impacted.

Economic uncertainty, layoffs and high stress related to debt levels are a reality in Sault Ste. Marie. It is therefore more important than ever to avoid misunderstandings and myths about debt relief, and understand all debt help options available, including personal bankruptcy.

Has a myth or misunderstanding about a debt relief option discouraged you from getting debt relief? Share your experiences with others at #BDOdebtrelief #LetsTalkDebt

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