The real consequences of a personal bankruptcy

We thought we’d share with you the most common questions about bankruptcy. These are legitimate concerns that we hear very often when people come in for an exploratory consultation. We hope that these clarifications can help demystify bankruptcy and its consequences.

Q. Will everyone know if we go bankrupt?

A. Unless you are a well-known person or have a lot of realizable assets, your name will not be published in the newspapers if you go bankrupt and even less likely if you file a proposal. Indeed, the vast majority of personal bankruptcies remain a very private matter, far away from your employer, your friends, neighbors and sometimes even your spouse, if that is your wish.

Q. Will I lose all my assets?

A. The bankruptcy laws are more and more lenient and now allow for even more assets to be protected from your bankruptcy. If you go bankrupt, RRSPs and pension funds are now protected against garnishments, except for certain contributions made in the 12 months before your bankruptcy. Also, the law prohibits a creditor who finances your house or car from taking back the property simply because you are bankrupt or insolvent.

So, if your mortgage or car loan is not in default, you’ll be able to keep those assets unless they’re worth a lot more than the amount of financing. While each situation is unique, it is the trustee’s job to examine yours and inform you of the consequences before you make your final decision.

Q. Can all debts be included in a bankruptcy?

A. Most debts can be included and cleared through a bankruptcy. The inclusion of a debt is the rule, not the exception. On the other hand, student loans, if the end of studies is less than 7 years old, child support or alimony, and speeding tickets are the 3 most common types of debts that cannot be discharged by bankruptcy. Many people will be surprised to learn that tax debts can be released through bankruptcy, as long as there is no fraud involved.

The Bankruptcy and Insolvency Act is based on the principle that every honest and unfortunate person has the right to a second chance. And what better way to allow such a person to succeed in his financial reorganization than to allow him to keep his work, his dignity and the assets that have no or little net worth for his creditors.