No matter what your reasons are for going bankrupt, it can be an unpleasant and scary time. While the potential for wiping off debts and not having to worry about the specter of creditors any longer is appealing, bankruptcy comes with some long-term consequences.
In this article, we will take a look at some of the most serious knock-on effects of bankruptcy, how your financial standings might be affected, and – crucially – what you can do to mitigate the effects of your bankruptcy and turn things around.
Bankruptcy: the causes and consequences
People go bankrupt for all sorts of reasons: whether you’ve experienced a squeeze on your income, an unexpected financial catastrophe, or a business endeavor that didn’t work out, you’re not alone.
With somewhere in between 120,000 and 150,000 Canadians claiming a consumer proposal or going bankrupt every single year, there’s a real diversity of bankruptcy stories out there.
While the figures may actually be going down over the longer term, that doesn’t make the process less unpleasant for those who do have to make the choice.
When a person is declared bankrupt here in Canada, there can be a lot of consequences. Some assets get exempted, but it’s possible that everything from your bank account to your home could be seized as part of the process.
Many provinces place limits on the exemptions granted to those who have gone bankrupt, so while you can keep enough resources to pay for clothes, health equipment, food, and so on, it’s likely that you could see many of your assets get stripped away.
While your spouse is not liable for your debts unless they have co-signed on them, it can affect your family life in a wide range of ways. Your home may be under threat, and you may have trouble raising finance together in the future.
Your home and mortgage
When you get declared bankrupt, whether or not you’ll be allowed to keep your home depends on a number of factors.
If you’ve got a lot of equity (which is the value of your house after you knock off all your remaining mortgage payments), then it’s likely that you’ll be required to sell up. However, if there’s not much equity, then you’ll usually be able to keep your home and go on paying your mortgage, as there would be nothing for creditors to gain by having you sell your home.
Once you’ve been declared bankrupt, getting a mortgage in the future may be a little tricky – but it is possible. What you need to do first is receive a discharge from your bankruptcy, which is the official removal of your debts and often comes nine months after you file. You’ll also need to demonstrate that you are better at managing credit and paying off debt.
It’s sometimes possible to do this within a couple of years after your bankruptcy, so don’t lose heart.
Paying for your car
While the scariness of bankruptcy may make it seem as though you’ll never be able to borrow or get a loan ever again, that’s just not the case.
Those who go bankrupt in Canada can still get a car loan approval while in bankruptcy, and it’s not always difficult. You will need a special finance adviser who can look over credit plans with you and help you do some essential administration work such as making sure that the credit bureau has up-to-date and correct information on you and that any old accounts are shut down.
As well as meaning that you’ve got a way to get around and don’t have to rely on public transport, provided that you demonstrate a commitment to paying off the monthly payments, a post-bankruptcy car loan is a good way of re-establishing your credit.
This is crucial for demonstrating to other lenders that you’ve overcome your bankruptcy and that you’re determined to be a responsible borrower in the future.
You might not be able to get a large or beautiful car right now, but you’re likely to be able to find a cheaper car that suits you and that helps you get back on your journey to financial health.
Ultimately, it’s clear that there are a lot of possible consequences when it comes to going bankrupt. From the impact that it can have on your nearest and dearest to the risk that you won’t be able to get enough credit to buy what you need in the future, the potential outcomes are not all positive.
However, it’s not all doom and gloom. With many opportunities available when it comes to tasks such as finding a new mortgage and raising enough finance to get a car, there is light at the end of the tunnel.