Bankruptcy Basics

There are several reasons why someone might choose bankruptcy as an option. Considered the most extreme option for dealing with debt, the benefit is that it could save the borrower the most amount of money but can permanently affect a person’s credit. It’s essential to evaluate all possible options.

Reasons people file for bankruptcy

There are lots of reasons people file for bankruptcy, and it’s not always financial irresponsibility. Sometimes things don’t go as planned, and the federal government has created an option that is fair to lenders and borrowers.

Decrease in income 

loss of job 

death of a family member 

change in stability at home


new and unexpected expenses

changes in the economic climate

loss of investments. 

The upside of bankruptcy

To have debts forgiven: eligible debts are forgiven and can provide much-needed relief and give the borrower a fresh start.

Stop legal actions and harassment: Filing for bankruptcy means creditors can no longer contact the borrower or take any legal measure to collect.

Protect assets: Bankruptcy can help protect assets like a home, car or support needed to work. It protects equity and could also prevent foreclosure.

The downside of bankruptcy

It’s permanent: Many loan applications will ask if you have ever filed for bankruptcy, which could affect the loan’s approval or interest rate. 

Not getting a discharge means the borrower is still “in bankruptcy.” A discharge adjourned “Sine Die” means the borrower isn’t discharged, and the lenders can pursue debt recovery again.

Social taboo. Some people think it’s a sign of financial irresponsibility even when it is not the debtor’s fault.

Misconceptions of Bankruptcy

You can keep your home or vehicle even if you file for bankruptcy. With secured assets, you can keep them if you continue to make the payments. If you can’t or choose to let it go, the debt owed after selling it will be wiped out.

You aren’t allowed to work or earn income while in bankruptcy: You are encouraged to work and make as much as possible, but the creditors get a portion of it.

Bankruptcy ruins your credit permanently. A good track record of making payments with a low debt ratio will look good, even if there is an old bankruptcy on your record.

Banks won’t lend you money after filing. Some creditors will lend money right after a discharge knowing that you won’t be able to file another bankruptcy for a few years, hoping you’ll pay interest over time.

The Grey Areas

Bankruptcy doesn’t always save money

It doesn’t wipe out all debt

A reduced credit score doesn’t hurt everyone

Some lenders are eager to lend after a bankruptcy


Bankruptcy can be beneficial to some even with the drawbacks. It is important to consider all of your options and to consult with a professional before considering bankruptcy. A licensed trustee is the only one who can administer a bankruptcy and they can offer consumer proposals as an alternative. If you would like to know other options that could be suited to your unique situation, contact us