Is there a stigma to Bankruptcy?

Like many Canadians, you may be struggling to keep up with your debt payments. Inflation has significantly increased the price of day-to-day expenses and high interest rates are making it more difficult to pay off debt.

Although you may feel alone in this situation, many others are also struggling with financial stress, missing credit payments, or receiving calls from creditors.

Bankruptcy could be the best solution to provide you with a fresh financial start. Still, you may feel ashamed or afraid to start the process. There are many misconceptions about Bankruptcy, and you may be worried about what others will think if they find out about your situation — or you may be uncertain of how the process works.

Let’s explore some of the stigmas around Bankruptcy, why you shouldn’t be afraid of this process, and how a Licensed Insolvency Trustee (LIT) can help you on your journey toward a debt-free future.

What is the stigma around Bankruptcy?

A stigma is a negative belief that may not be based in reality. One of the stigmas around Bankruptcy is that it only happens to people who are careless or reckless with money. This is not true — there are many reasons why bankrupt individuals may be struggling with debt, such as unexpected job loss, sudden medical expenses, or the end of a relationship.

Nonetheless, these stigmas may make you afraid of what your friends or family members will think if you declare Bankruptcy. It’s normal for people who are struggling with financial stress to worry about what others will think — but many Canadians are also struggling to manage their debts.

MNP’s Consumer Debt Index consistently shows that anywhere from 45 to 55 percent of Canadians are $200 or less from not being able to meet their financial obligations at any given time. Many people you know may be in the same situation. We are often our own toughest critics — and your friends and family may be more understanding than you think.

At the end of the day, you can’t control how others might react; there’s no guarantee that your friends and family won’t believe the stigmas around Bankruptcy. That shouldn’t stop you from taking the necessary steps to control your financial future.

What are the facts about Bankruptcy?

Bankruptcy can help provide you with a fresh financial start. It is a legal process that is managed by a Licensed Insolvency Trustee (LIT), who will assess your financial situation, file your paperwork, and take steps to inform your creditors, stop wage garnishments, and put a stop to any legal action related to your Bankruptcy.

The process lasts between nine and 21 months if you have never declared Bankruptcy before. During the process, you may have to surrender some of your assets to the LIT, who will sell them to pay off your creditors. After the Bankruptcy process is complete, most of your debts will be discharged — meaning you will no longer be responsible for paying them.

Many people are worried about the impact of Bankruptcy on their credit score or possibly losing valuable assets such as their vehicle. These fears are understandable — however, they are also part of the stigma around Bankruptcy and don’t necessarily reflect reality.

A first Bankruptcy remains on your credit score for seven years after you complete the process; however, you can begin taking steps to rebuild your credit almost immediately.

While an LIT may sell some of your assets, you are often able to keep household items, personal effects, and your vehicle. The process may seem intimidating, but you shouldn’t be afraid of Bankruptcy — and it could be the solution you need to achieve a debt-free future.

How an LIT can help you achieve a debt-free future

LITs are the only professionals authorized by the Canadian government to administer proceedings such as Bankruptcies. They are subject to strict ethical and governmental regulations and have the experience to help you on your journey toward a fresh financial start.

An LIT will review your financial situation and help you make an informed decision about the solution that works best for you — such as Bankruptcy or a Consumer Proposal. They will deal with creditors on your behalf and work with you throughout the process until your debt has been repaid.

If you are struggling with debt or financial stress, don’t wait to reach out for help. MNP LITs can provide you with support and guidance if you are thinking about declaring Bankruptcy. We can help you understand your options, choose the solution that works best for you, and provide support as you take control of your financial future.