Facts obliterate the myths! The same is true about the financial industry’s nightmare – Bankruptcy. Canadians experiencing financial stress often dread at the very talk of going bankrupt. However, some people take it in stride and jump on the bandwagon even when they have no idea about bankruptcy’s deep repercussions. The myths associated with going bankrupt often overshadow the desire for smarter money management.
Ignorance about financial matters further compounds the already grave situation. Our mortgage experts in Mississauga are often asked about the bankruptcy option with a load of misconceptions and myths attached to it. Let’s hear the top 7 myths related to bankruptcy and their solutions to make smart financial choices.
- Myth No. 1 – Going Bankrupt is as Easy as Pie
Most people think declaring bankruptcy is simple way out of the financial mess. That this is the easier route to sort out your financial problems is the biggest misconception. In reality, the bankruptcy filing remains on the credit bureau report for a period of 6 years. Your credit score will have marks of bankruptcy for 6 years during which it will extremely difficult to secure credit. Not to mention the emotional baggage that includes guilt and shame that remains even longer.
- Myth No. 2 – Everyone is Eligible for Filing Bankruptcy
General public seems to believe that every ‘Joe’ can easily go bankrupt with the support of government. Though most people can, there are severe consequences where going bankrupt is not the ideal solution. The exact factors include assets, collateral and future income levels. For some people, resolving financial mess is a better option than losing the match willingly.
- Myth No. 3 – There is No Other Option
Totally untrue! There are several alternatives to this nightmare including debt management, debt consolidation, Formal and Informal consumer settlements, refinancing your mortgage and more. Every case is unique and depends on individual’s financial situation. Bankruptcy alternatives are best discussed with a credit counselor.
- Myth No. 4 – Bankruptcy will Cover All My Debts
Remember, bankruptcy is not an elixir that will cure all your problems. There are myriad types of debts that it does not cover. For example, car loans or mortgages are often not covered. Student loans are also debatable since some students take long leaves from study and misuse the purpose of loan. Moreover, divorce debts and joint debts are debatable as well.
- Myth No. 5 – There Won’t Be a Single Penny Left in Your Pockets
Going bankrupt does not mean you will lose everything. Most provincial laws ensure that you are not devoid of your life’s basic amenities like clothing and furniture etc provided their value is within set limits. Health and medical equipment are also not taken away. In some cases, homes without equity can be kept as well. Equity represents the market value of your home after deducting the amount owed by you against the home. If you are a worker, tools/machines related to your livelihood are not collected if their value is below set limits. In Canada, you will not face mortgage foreclosure.
- Myth No. 6 – Bankruptcy is Limited to Only Poor People
People from every strata of society are affected by financial problems. From middle class to lower class and even the rich, all face monetary problems. Everyone seeks specific solutions to tackle debt. Bankruptcy is applicable to everyone who fails to pay their obligations.
- Myth No. 7 – Exhaust Every Credit Card and Just File for Bankruptcy
Don’t think that you can shop around endlessly before declaring bankruptcy. It will only create problems and jeopardize your relation with the creditors. They can oppose your bankruptcy application and foil your entire plan. Remember, trustees are vital to secure discharge from financial obligations.
What Made you End up on this Road
While bankruptcy is an option as a last resort, it does not actually address the core problem. The issues at the very heart of the problem can be addressed once you ask yourself how you ended up in this mess. How did you pile on enormous debt? For once, sit down and think why you are struggling with debt? Ask yourself:
- Are your incomes and expenses managed as per a planned monthly budget?
- Do you save money for mortgages, emergencies or annual expenses?
- Are there any specific long-term financial goals you are faltering with?
- Do you suffer from non-financial or emotional issues that worsen your situation?
There are Other Options As Well – Explore Them First
Most people have never learned smarter money management skills. It sounds strange, but no school/college teaches children credit management skills or inculcates habits that promote sound financial health. Credit is a temporary fix. Handling deeper issues takes discipline. Mastering financial skills puts you in charge of your destiny. Explore mortgage refinancing, debt consolidation, renewal at better interest rates, credit counseling before opting for bankruptcy. For professional help, consult a good non-profit credit counseling agency or a local credit counselor in Mississauga.