"I have to declare bankruptcy!" I can't tell you how many times I've heard clients say this to me as they walk into my office. Everyone thinks that their own financial situation is the worst case ever— 99.99% of the time, it's not—and that they have no other option but to file for bankruptcy. Sometimes that might be the case, most of the time it's not, but either way filing for bankruptcy isn't something anyone should take lightly.
No one likes to admit defeat, and that’s true for those dealing with debt too. I’ve spoken with many people who have tried for years to make good on their debts, taking on second (and third) jobs, selling their belongings, and living on just the bare necessities. But despite trying all of these strategies, they just can't seem to make ends meet. In cases like these, bankruptcy may be a viable option, but it should only be seriously considered after all other avenues have been explored.
There are various reasons why a person might want to consider bankruptcy as an option, including:
- Loss of income in the household, and therefore no money to pay the debts
- Making payments towards debt but it isn’t going away and it’s too much to maintain
- Dependent on credit—the cost of the debt is so high there is no money left for everyday expenses so you need use credit cards to buy gas and groceries
- Overwhelmed and stressed about finances and it’s affecting sleep and personal wellness
- Reached your borrowing limit and your bank will not provide any further financial assistance
Looking at this list, many of these challenges can be resolved through an option other than bankruptcy, such as debt consolidation or even a consumer proposal (still considered insolvency, just like bankruptcy, but not as severe). But let's take a look at how these other options might measure up to someone considering bankruptcy.
- Debt consolidation loans. Acquired through a bank, credit union, or finance company, a debt consolidation loan can be used to pay off numerous secured and unsecured debts, so that only one monthly payment needs to be made to the loaning institution (and hopefully at a lower interest rate). However, to get a loan you must have a good credit score, which few people in serious debt do, making this option unlikely.
- Debt consolidation programs. A Debt Consolidation Program involves rolling all your debt into one monthly payment through a credit counselling agency (they should be non-profit). A certified credit counsellor then works with your creditors to help pay off your debt over time (usually between 2-4 years), and reduce or stop interest. However, some creditors might not agree to the terms or stop interest, or reject the proposal altogether. In other cases, a client might not be able to afford the monthly payment, so they wouldn't qualify for the program.
- Consumer proposals. A consumer proposal is still considered insolvency but is preferred to bankruptcy. It requires that you pay your creditors a portion of what you owe within a certain time period, so you will still need to have an income or assets, and that just might not be the case for many people struggling. Proposals are also legally binding (a debt consolidation program is not), so defaulting on one will result in legal action that could make a bad situation worse.
There is no shame in declaring bankruptcy if all other options have been exhausted. People in debt and those declaring bankruptcy come from all walks of life, and all economic and educational backgrounds. Declaring bankruptcy doesn't make you a bad person and it doesn't mean you're a failure. But what it does mean is that your credit rating and score will be shot for years to come, which will impact your ability to get a loan, credit, a mortgage and in some cases even a job.
So if you think bankruptcy is still an option you'd like to explore, speak to an unbiased professional about it first. At Credit Canada, we never judge, and we’re here to help you. If you’re struggling financially and have tried everything to get yourself back on your feet without success, let’s talk. Call us at 1-800-267-2272. The call is free and completely confidential, and you can choose whatever option makes the most sense for you, there's no obligation. Why? Because we’re a non-profit and registered charity, so we're here for you.