Filing for bankruptcy can be a huge step towards setting your finances straight and relieving yourself of bad debts. However, there are certain misconceptions many people believe have that stop them from filing for bankruptcy. To help you understand the truth behind these, below are three of the more common myths surrounding bankruptcy and the truth behind them:
Bankruptcy Results in Foreclosure
For many people facing bankruptcy, their biggest worry is losing their home. They reason that their mortgage is a form of their debt, and by declaring themselves bankrupt, they will have their property taken away from them. However, oftentimes this isn't the case and declaring bankruptcy can actually help a struggling debtor hold on to their home.
Of course, this heavily depends on the case in question. If you're applying for bankruptcy, the courts will decide your case on its own merit and will make the final decision regarding your situation. With that said, both bankruptcy and consumer proposals have clauses that could allow you to hold on to your home:
- Consumer proposals gives you the opportunity to settle your mortgage payments over an extended period of time. Typically, your monthly mortgage payment will be reduced and your arrears will be spread out over a longer period that you initially agreed to in your mortgage contract.
- Ordinary bankruptcy allows for the same extended payment period as Chapter 13; however, it also includes an additional tax liability clause that could save you money on your monthly payments.
Bankruptcy Is a Stain on Your Character
Some people believe that bankruptcy will ruin their character, make them appear untrustworthy and unable to manage an income. The stigma attached to bankruptcy is widespread in the media, and as a result, many people can become down or depressed when they think of the stain bankruptcy will leave on their character.
However, the truth is that bankruptcy is much more common than you may believe. In 2015 alone, around 64,000 Canadians filed for bankruptcy. And this figure doesn't include those who file for consumer proposals, which is a more relaxed form of insolvency.
Filing for bankruptcy shouldn't be considered as a negative thing; rather, it should be seen as a turning point in which you take action on your debts and build towards a more comfortable future. Navigating the bankruptcy process can be difficult, but you will emerge on the other side a stronger, more resilient person. As such, bankruptcy should definitely not be considered a stain on your character. If anything, it should be embraced as a turning point.
Bankruptcy Means You Won't Be Given Credit in the Future
Nowadays, bankruptcy isn't the black mark it used to be. Since the financial crisis in 2008, it is indeed true that lenders are more apprehensive when it comes to granting loans and mortgages. It is also true, unfortunately, that people with higher credit scores will be above you in the pecking order.
However, bankruptcy can actually help you obtain credit by granting you a clean slate. Many people who don't file for bankruptcy spend years chipping away at their debt, making no real progress on reducing the mountain in front of them. By filing for bankruptcy, you are removing this huge burden in front of you, allowing you to get back on the road towards financial security.
While bankruptcy will remain on your credit report for 10 years, this doesn't mean you won't be able to source any credit during this time. Rather, if you have taken steps to change your spending behaviours since filing for bankruptcy, lenders will look at your application in a positive light. Be careful however, your first credit cards since bankruptcy will likely have high interest rates attached. However, if you manage these initial sources well, it won't be long before you're offered more typical rates on your credit. For more tips or assistance, talk about bankruptcy with Moses Advisory Group Inc. and other local services before taking your next step.