Dealing With Financial Problems: Time To Move Beyond The Fear

The origins of the fear factor.

The modern version of insolvency law in Canada was enacted in 1950. It is designed to provide financial rehabilitation to debtors saddled with an insurmountable amount of debt and to provide creditors with an equitable process that ensures protection of vulnerable creditors, investigation powers and supervision of compliance of all involved. It’s guiding principle is that honest and compliant financial behavior will not be punished.

Fear of bankruptcy, and more so fear of its consequences, comes from the fact that insolvency laws were originally designed for business purposes at a time when personal credit was not readily available and being in personal debt was considered dishonourable and inconsistent with social norms. Personal loans were often local in nature and direct contact between the lender and the borrower was unavoidable.

The Canadian credit system has since evolved into a system which is based more on the assessment of financial risk rather than the expectation of a moral contract, enforced by social norms.

Finally, early insolvency law provided that all bankruptcy notices were published in local newspapers which were, at the time, the main source for information. Communities would be abuzz when a bankruptcy occurred and the social and moral fallout often fell squarely on the debtor, regardless of the circumstances. This has changed and notices are almost never published when individuals file for bankruptcy.

The general consequences of going through an insolvency process have never been less stressful and more private than today. The consequence of doing nothing, when something should be done, may be cause for more justified fear.

Doing nothing is what should be feared

Doing nothing will leave you vulnerable to action by your creditors:

• They may call you, sometimes several times a day;
• They may start legal action which can lead to garnishments and to losing assets;
• Utilities (gas, electricity) may stop providing service;
• Missed and late payments negatively impact your credit score.

Doing nothing will also make your personal goals harder to reach:

• Making minimum payments to pay off your credit card debt will be a very, very long process (your last credit card statement will tell you how long);
• Paying down insurmountable debt will prevent you from setting medium and long term financial goals: travelling, buying a house or renovating, saving for retirement.

Why bankruptcy and fear don’t mix

Going through bankruptcy is not a joyful experience and has consequences. However, the process is designed to help committed individuals get a fresh start. If no problematic transactions were made before bankruptcy and no fraud is involved, most bankruptcies are dealt with quickly. During the process, debtors benefit from protection from actions by creditors: no more collection calls and garnishments.

A licenced trustee will allow you determine if a bankruptcy, or a proposal, is the right solution to your financial issues and will help you move beyond your fear. Along with a solution that is adapted to your needs, you will receive the financial and budget counselling required to know how to avoid financial difficulties and re-establish credit in a cost effective way.

Fear will be behind you. You will be confident and ready to move forward with your financial life.