As a bankruptcy trustee, I follow one simple philosophy that I discuss with every person I meet who is in financial trouble:
Declaring bankruptcy in Canada is a last resort.
Bankruptcy is the best option only when you have considered all other alternatives to bankruptcy first.
I often meet with people who tell me that “the collection calls are driving me crazy, so I just want to go bankrupt and get it over with.” I understand their frustration, but for many people declaring bankruptcy is not something they should choose. In fact, it may make matters worse.
- if you have significant surplus income, declaring bankruptcy may be a more expensive solution;
- if you have equity in your home and you declare bankruptcy, you may lose your home;
- bankruptcy has serious financial and personal consequences including an impact on your credit rating.
During a consultation, the first step is to understand your situation, your needs and your objectives. If your bankruptcy trustee does not take the time to get to know you, get a second opinion. Once I understand a person’s situation, I always start with a discussion of all of the alternatives to bankruptcy. It’s important that you fully understand the pros and cons of every solution available to you. We explore alternatives such as:
- Reducing expenses, or increasing income. We help you find ways to free up cash to deal with debts on your own. You would be surprised how often we can help someone take a deeper look at their budget or their financial lifestyle to find a way out of their debt dilemma. Whenever possible we opt for this solution because your credit rating will actually improve.
- Getting a debt consolidation loan. A trustee can help you explore your cash flow and credit potential to see if it might be better for you to pay off high interest debts, like credit cards, and replace them with a lower interest rate loan. You still get out of debt faster, have one monthly payment but avoid bankruptcy.
- In many cases a a consumer proposal is often a better option. Consumer proposals as a debt management option have increased in recent years and as of 2013 make up 40% of all insolvency filings in Canada and the percentage is increasing. This is because of the significant benefits of a consumer proposal over filing bankruptcy. You can still deal with your outstanding debts and avoid the surplus income penalty. You also don’t lose any of your assets, and you avoid bankruptcy.
Bankruptcy may be necessary to deal with your debts, but it should be viewed as a last resort, after all other options are considered. I suggest you book a no charge consultation with a bankruptcy trustee and ask them to explain ALL of your options, so that you can make an informed decision.