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Myths and reality: what are the consequences of bankruptcy?

Article updated on 19/08/2019
There are a lot of preconceptions about the consequences of bankruptcy. Let’s clear up one of the main ones: bankruptcy is not a failure. It can actually be very freeing for a lot of people. Here are some explanations to set the record straight on the most common myths!


Myths and reality: what are the consequences of bankruptcy?
  • There are many myths about the consequences of bankruptcy. According to some, going bankrupt means losing everything. That’s not at all true. Every situation is different, but often people who declare bankruptcy don’t lose their home or car.
  • Bankruptcy isn’t even the only solution. There are alternatives. The role of the counsellor in financial recovery is to help you find the best solution for you. They will give you an overview of the possible solutions along with their pros and cons.
  • If bankruptcy is the best option for you, you should see it as an opportunity for a fresh start.

Myth 1: If I contact a counsellor in financial recovery or Licensed Insolvency Trustee, I will have to declare bankruptcy.

Contrary to what people often think, bankruptcy isn’t the only solution to financial problems. There are a number of alternatives to bankruptcy. Our counsellors are there to help you choose the best one for you. Here are some:

  • Consumer proposal: Under the law, you only have to repay your creditors for part of your debts with this option. You can also extend your repayment period. You can even do both.
  • Debt consolidation: You can combine all your debts into one. This way, you only have to make one payment per month.
  • Voluntary deposit: You agree to make a payment to the court every month until your debts are repaid.
  • Declaring bankruptcy: In some cases, bankruptcy might be the best solution for starting again with a clean slate. It involves several steps. You can count on one thing: you are not going to lose everything you have!

Be sure to make the right decision by booking an appointment with one of our experts today.

Myth 2: If I declare bankruptcy, I’ll lose my car and home.

Are you afraid of losing everything by going into bankruptcy? It’s understandable that you’re worried, but you shouldn’t be. Whatever happens, you’ll keep your essentials. You can pay a certain amount each month to keep some of your property. Our counsellor will help you determine this amount.

You can keep:

  • Your furniture
  • Your food and clothing
  • The tools and equipment you need for your work
  • Money received as compensation for physical injuries
  • Employer pension funds
  • RRSPs (except contributions made in the last 12 months)
  • Registered retirement income funds (RRIFs)
  • Locked-in retirement accounts (LIRAs)
  • Your home and car, in most cases

Myth 3: I can’t bounce back after a personal bankruptcy as I’ll have lost everything.

It bears repeating: bankruptcy is not a failure. If anything, it’s a relief. If you think about it, your current situation can only improve.

Our counsellors will help you:

  • Protect your rights when dealing with creditors
  • Relieve you of your current stress
  • Regain control of your financial situation
  • Make a fresh start
  • Develop good financial habits for the future

Myth 4: I won’t be able to borrow again after declaring bankruptcy.

Let us be clear here: bankruptcy won’t prevent you from borrowing again in the future. By letting you have a start fresh, it gives you the opportunity to rebuild your credit. You should expect to get there in two to three years. And you won’t be going through the process alone; our counsellors will be there to tell you what you need to do. This includes:

  1. Having good financial habits. This means having stable employment, respecting your budget, paying your bills on time, paying off your entire credit card balance each month and saving.
  2. Immediately taking out a small loan from a financial institution and putting it into a guaranteed investment certificate (GIC). When you finish repaying your loan, you’ll be able to use the money in your GIC. In the process, you’ll also have shown your bank that you can manage credit and are a trustworthy borrower.

You credit will rebuild with time. It’s likely you’ll even be able to buy a home!

Myth 5: I won’t be able to have another credit card after declaring bankruptcy.

This is false. After your bankruptcy, you can apply for a secured credit card. It’s a good way to rebuild your credit.

The bank will keep a deposit equal to your credit limit ($500, for example) as security. After a year, you can ask to have your deposit back or increase the limit on the card.

Of course you need to make sure to pay the full balance each month.

Myth 6: If I declare bankruptcy, I’ll lose my RRSPs.

This isn’t true. All the money you have contributed to your RRSPs, except for the contributions made in the last 12 months, is protected from creditors when you declare bankruptcy. This means no one can take your retirement pension!