Loan Articles

For many, bankruptcy is a last resort and declaring bankruptcy should follow other measures such as debt consolidation and debt settlement. Bankruptcy has stigma to it and damages one’s credit rating. Moreover, persons who declare bankruptcy do not have access to credit cards, consumer loans, and other sources of funding, which many Canadians consider essential for living well. Bankruptcy affects not only the person who files a bankruptcy petition. Their business, family, and spouse are also affected by the bankruptcy filing.

While this sounds like a horror movie, it does not have to be true, and some of it is, in fact, not true. First of all, if you declare bankruptcy in Canada, your spouse, whether married or common law, will not be affected unless she or he is also responsible for the debt. This is the case if they signed a contract or an agreement for any of your loans. The credit rating of your spouse will not be affected, and if they have assets in their name, these will not be part of the procedure. If your spouse has debt or is responsible for any of your debts, they might have to declare bankruptcy as well.

Apart from this, there are some obvious benefits to bankruptcy, but of course, some depend on your particular case. Bankruptcy benefits debtors in that, creditors and collection agencies should cease all actions against them once all documents are filed. They are required to comply by law. One exception is secured creditors like banking establishments that hold lien on a car, for example.

Debtors who declare bankruptcy can keep their existing bank accounts. In fact, banks are not allowed to refuse to open or to cancel bank accounts because a debtor is in bankruptcy. If they do so, they are breaking the law. As an added benefit, financial companies cannot cancel your contracts as long as you make regular payments. A new law went into force in 2009 in order to protect persons in this situation.

What is more important, the terrible stress many debtors are under will be gone once they file bankruptcy. Taking steps to gain control over one’s finances and life is important. Debtors get their dignity back as well. Being broke, on the other hand, can affect all aspects of life, with debtors constantly worrying about car payments, mortgage payments, or both. This can be depressing and tough on one’s self-esteem, and bankruptcy brings relief. Moreover, the trustee is responsible for all dealings with one’s lenders, and the bankrupt can refer collector and creditor calls to the trustee.

There are more benefits to filing for bankruptcy. One obvious benefit is that you can start from scratch, without having to worry about your burdensome debt. You will be allowed to keep certain assets (what you can keep depends on your territory or province) so that the risk of declaring bankruptcy once again is minimized.

Finally, some claim that bankruptcy helps borrowers improve their credit score. If you reached the point in which you are to file bankruptcy, your credit score is far from perfect. In many instances, debtors already have multiple repayment problems, such as collection accounts, charged-off accounts, very high balances, and late payments. If your credit score is poor, it is not likely it will decrease much further. To that, the debtor’s credit score will be computed differently. It will be based on how the debtor is doing compared to other filers, which helps make more accurate predictions regarding credit risk. Debtors who file bankruptcy are not compared with persons with perfect, rosy credit reports. Among bankruptcy filers, credit scores often run the gamut, with persons having very bad and very good FICO scores.

This does not mean that bankruptcy filers can expect their credit score to jump to 850 in a couple of months. However, by being responsible about one’s finances and employing some smart credit repair strategies, bankruptcy filers can expect that their score is in the 700s in 2 or 3 years.