Date: Mar 30, 2010
By: Lor Cleveland, Licensed Insolvency Trustee
Trustee in Bankruptcy
Chances are, if someone’s telling you about their pregnancy or medical experience, it’s about something exceptional that happened. You rarely hear someone say, “My root canal was no big deal.” I guess that’s because we like to talk about things that are unusual or remarkable. Things that will get a Wow! or a No Way! or a Poor you! response. We like to arrest people’s attention.
I think the same thing goes for bankruptcy. The problem, then, is that rumors abound and the fantastic, exceptional stories circulate. And the unusual is believed to be the norm. No wonder people who are experiencing financial difficulties are fearful and stressed.
The best way I know for dealing with fear is to face it head on. Turn on the “light” in a dark and scary circumstance with facts and information, and make those fears scurry away. So, with all the myths and misconceptions floating around out there about bankruptcies and proposals, let’s address a few here.
×           I can’t pay my bills so I need to go bankrupt. Not necessarily.  There are many options for dealing with debt; some the debtor can effect on his/her own, others which need professional assistance. With the recent amendments to the law, bankruptcy isn’t as attractive an option as it used to be. So it’s worth exploring all the alternatives.
×           Tax debts can’t be claimed in a bankruptcy or proposal. Wrong. They are included in the list of creditors and are dischargeable by a bankruptcy or fully performed proposal. Source deductions may be the exception, depending on the circumstances. The Canada Revenue Agency may not be too inclined to vote in favour of a proposal, but majority rules, so it depends on how much CRA is owed compared to the whole body of creditors.
×           Student loans can’t be claimed in a bankruptcy or proposal. Not necessarily. If it’s been more than 7 years since the debtor ceased to be a student, then the student loans have no special status and are dischargeable by a bankruptcy or fully performed proposal. If it’s been less than 7 years, the loans would be included in the bankruptcy or proposal but not dischargeable. They’d be subject to the stay of proceedings, but interest would continue to accrue. After 5 years from ceasing to be a student, a court application could be made to have the student loans discharged.
×           I’ll never get credit again. Sure, bankruptcy will generate an R9 (the lowest possible rating) in the credit bureaus which will remain for 6 years from the date of discharge for a first-time bankruptcy and 14 years for a repeat bankruptcy. And filing a proposal will give an R7 for 3 years from the date of full performance of the terms. But that doesn’t mean one will never be able to get credit again. Lenders assess risk. So the ability to get credit will depend on the applicant’s ability to convince the potential lender that s/he’s not a bad risk.
×           I’ll lose my car. That depends: on whether it’s collateral on a loan and the payments are in arrears; for a bankruptcy, on whether the value of the vehicle exceeds any encumbrance against it, on whether it’s needed for work and whether the value exceeds the exemption limit, on whether the bankrupt has the wherewithal to buy it back from the bankruptcy if the trustee is going to sell it.
×           I’ll lose my house. Again, in a bankruptcy, that depends: on whether there’s any equity; on whether it’s jointly owned and only one of the owners declares bankruptcy; on whether the bankrupt can buy the equity from the bankruptcy.
Even if someone you’re speaking with is able to give accurate details about a previous bankruptcy or proposal experience, the amendments to the Bankruptcy and Insolvency Act may mean what they went through would be completely different now. Every situation has its own little nuances that dictate how something would play out. So, it’s worth taking the time to get the facts. Speak with us. We’d gladly help turn on the light and dispel those fears.
Nam et ipsa scientia potestas est.
Knowledge itself is power.
— Francis Bacon
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