Many people live with the constant worry that they won’t be able to pay off their unsecured debt one day. If you’re one of those people, then maybe this question has popped into your head: am I going to lose my house or car because of my debt? If you can’t see the forest for the trees, as it were, when it comes to your finances, you might even think that declaring bankruptcy is the only way to relieve your debt.
Worrying about finances is common for a huge part of the population, but that doesn’t mean that it needs to be a part of your life. If you’re worried about not having the means to pay back your debt, know that you aren’t alone. It can be scary to think that your debt could have major consequences on your lifestyle, but that’s why you should consult with a credit professional as soon as you sense that you’re heading towards insolvency.
So, who can help you? Licensed Insolvency Trustees (formerly known as bankruptcy trustees) have the unique knowledge base and experience to assess a person’s financial situation while taking into account all the important factors. They know what it’s really like to declare bankruptcy or file a consumer proposal, and they can help you understand what the process would be like.
Are You Prepared for the Unexpected?
Debtors often don’t know what they can do in cases where the amount of money they owe has mounted to something unmanageable, but bankruptcy trustees can help with the decision-making process. Difficult debt can cause a lot of stress in someone’s personal life, and it can even have consequences on a person’s health and employment if they’re in a position where their wages are being garnished.
When you’re just getting by as best as you can, you cross your fingers and hope that you don’t get blindsided by an unexpected cost. Something like a broken-down car or medical emergency can put a serious strain on a person’s finances. You are entitled to living without the fear of bankruptcy, though, and deserve the chance to work towards an improved financial life.
If you’re wondering what a bankruptcy would look like for you, this article can help. We’ll cover some of the most common causes of bankruptcy, debunk its biggest myths and misconceptions, and show you what it takes to build your credit back up again after going through the debt relief process.
Legitimate Debt Relief
The debt relief that you can find through a legal procedure with a bankruptcy trustee will actually reduce the total amount of debt that you owe. Learning how to improve your money situation through credit counselling or financial advising might not be enough when you’re dealing with very large and burdensome sums of debt. In both a bankruptcy and a consumer proposal, the amount of debt that the debtor must repay will end up being lower than it was before going through the debt relief procedure.
Debt management is another popular service among firms that specialize in insolvency solutions. You might think that you’ve got your debt under control, but would that still be the case if you lost your job or suffered from a sudden medical emergency?
Most Popular Causes of Bankruptcy
One of the biggest misconceptions about people who need debt relief is that they are low income or financially irresponsible. This couldn’t be farther from the truth. People of all walks of life require financial assistance at some point, and there is no strict set of factors that lead someone to insolvency.
If you’re experiencing serious financial stress because of debt, know that you aren’t alone. The following causes of personal bankruptcy are some of the most common things that lead someone to seek out financial help. Knowing about these common causes can help you identify the problems in your own life and hopefully take control of your situation before things get too difficult to handle.
Unemployment or Loss of Income
Whether you have lost your job or taken a lower-paying job, a sudden change in personal income can make it difficult to stay on top of your debt payments, especially if you’ve already been struggling. There are multiple factors at play in a sudden change in income — it could be that a family member has chosen to take time off work, that your employer has had to lay off staff, or your working hours have been cut back. Perhaps you’re relying on credit cards to pay the bills, but when your income takes a hit, it’s most important to adapt your spending immediately.
Illness or Medical Issues
Even with some health coverage and access to good healthcare, there’s always a chance that we can get struck by a sudden illness that could affect our ability to work as well as pay our bills. Health care or insurance doesn’t always cover all of our medical costs, which means that a health issue with extra expenses attached to it can end up ultimately compounding a person’s debt.
Without an emergency fund or extra benefits, you could be paying for medical bills using credit even though you can’t yet work in order to earn the money you need to pay said bills. Disability income can be a major help, but it sometimes isn’t enough, especially if you have dependents to support. Since it’s impossible to predict when an unplanned medical emergency could hit you, there is little you can do to prepare aside from setting up your insurance and savings.
Divorce or Separation
The emotional cost that comes with divorce or separation from a spouse is difficult enough for a person to handle. In some cases, couples have dodged the bankruptcy bullet when the separation occurred, but it isn’t easy. After a split, couples have to spend more on separate housing and they have to cover the legal costs that come with going through a divorce. In fact, one study has shown that marital breakdown is the primary cause of insolvency for 14% of all bankruptcies.
Disaster or Serious Asset Damage
Even those who focus on budget savvy auto ownership and those who are insured in multiple aspects of their lives can get hit by an unexpected disaster at any moment that they cannot afford. Something could happen to a home that suddenly calls for an immediate repair, or sudden death in the family can have rippling effects on the household income. The amount of money that it can cost to re-settle a family after an unexpected disaster can lead to insolvency, even for those who are well-prepared.
Bankruptcy Myths and Misconceptions
When times get tough and it becomes difficult to see the way out of difficult debt, many individuals think about bankruptcy. Even without knowing what the process is like, we begin to worry about how we’re going to stay in charge of our finances and what a bankruptcy would do to our assets as well as our sense of security. Many people are not familiar with the bankruptcy alternatives that are out there, which means that they get caught up in thinking about a process they don’t understand without having a real, honest idea of what they can do about their insolvency.
If you’re thinking about filing for bankruptcy but have many concerns and questions, a consultation with a Licensed Insolvency Trustee will give you all the information that you need. A consultation is the first step towards debt recovery, and in many cases, it is where people learn that they can do much more about their finances than they originally thought.
Go ahead and reach out today to a reliable and trustworthy firm who will assess your situation and present you with all the facts you need to make an informed decision about how to proceed with tackling your debt. To help you understand just how many misconceptions there are about the real bankruptcy process, here are some popular myths and debtor questions about what it’s like to seek out this form of debt relief.
Bankruptcy is the easy way out
Even though bankruptcy isn’t as scary as some people would have you think, it is by no means something to be taken lightly. You can’t simply go bankrupt as a way to fix your credit or get out of your financial problems and responsibilities. In truth, the process involves a record on the credit bureau report that will stay there for over six years.
Anyone can file
Have you wondered about who exactly can qualify for bankruptcy? The procedure might be a realistic option for some, but it is certainly not for everyone. There are costs and fees that come with the process, and it’s important to be conscious of your assets and income level. A bankruptcy trustee can help you understand just how much you would have to pay if you go ahead with filing, which is a good thing since it might be best for you to go another route with debt recovery.
All debts are included in bankruptcy
To put it simply, no they are not. This method of debt relief applies to unsecured debt like lines of credit, loans, and anything else that isn’t tied to a physical asset. Secured debts like a car loan or a mortgage are not relevant to bankruptcies while student loans need to be over seven years old to qualify.
You can max out your credit cards and then go bankrupt
If you suspect that you need to seek out a government-regulated method of debt relief, you cannot make some large purchases and max out your credit cards before you declare. This type of spending pattern will jeopardize how you work with a Licensed Insolvency Trustee and creditors might reject your application because of the spending.
You lose everything
This is a common perception of the debt relief process, probably thanks to movies and television that dramatize what it looks like to be in difficult debt. The truth is that you simply will not lose everything since debt relief is meant to help anyone who cannot pay back their creditors. It is not a punitive procedure; the government wants people to get a second chance and to ultimately recover from what they owe. While the specifics of what qualifies as a “bankruptcy exemption” varies depending on provincial legislation, the goal is to have people maintain a standard of living and allow them to continue working. Modestly-priced vehicles and homes that don’t exceed certain values remain yours.
Build Your Credit Back Up Again
Your bankruptcy trustee can offer you some of the best tips on rebuilding credit after bankruptcy as a way to get back on your feet. While you might be wary of getting involved in credit after going through the bankruptcy process, there are effective strategies that can really make a difference. There are consequences to a person’s credit score after they file for bankruptcy, which makes building good credit such an important step to take during the recovery process.
A record of bankruptcy will be on your credit report for up to seven years after discharge, which can make getting a loan difficult. You have the option to get a secured credit card, a type of card that relies on a deposit between you and your bank. The card works almost like a gift card or debit card, where you can only spend the amount you’ve deposited. Use the card to make regular purchases or as the default card for phone and utility bills, and then pay it off right away.
Keep track of your credit rating and history so that you’re never surprised when applying for a loan. If there ever is a discrepancy between you and someone reviewing your credit history, you can provide a 100-word note to explain the situation.
Finally, you can build your credit back up through growing your savings. If you don’t have any savings, there’s no use in putting it off any longer. Build your savings goals into your budget and use banking auto deposits to regularly move a portion of your paycheque directly to your savings account.
It takes time, patience, and dedication to build up your credit after filing bankruptcy. Use whichever organizational tools you need to stay on track and never miss payments and open up to family and loved ones about what you’re going through. Having support and a team to be accountable to is a great motivator for reaching any goal, financial freedom included.