Bankruptcy – Pros & Cons

Pros and Cons

Like most things, Bankruptcy has both advantages and disadvantages.  In short, while your debt is erased, your credit is affected.  In order to provide you with a balanced view of Bankruptcy we’ve provided a list of pros and cons below.

  The good:
  • Pay less than you owe, as little as $1,800;
  • All debts, including tax debt, are erased with a few exceptions;
  • Stops wage and bank account garnishments immediately;
  • Stops creditor calls immediately;
  • As few as 9 month length;
  • Bankrupts can keep their car, tools, and other personal belongings;
  • No approval is required by creditors; and
  • Two free counselling sessions are included in our fee
 The not so good:
  • Bankrupts can lose some of their assets, if not repurchased;
  • Bankruptcy is geared to income like some rent is geared to income.  Once above certain income thresholds, the more you earn, the more you pay;
  • A few specific debts survive;
  • Bankrupts obtain an R9 credit rating;
  • Bankrupts can’t sponsor family and friends wishing to immigrate to Canada; and
  • Bankruptcy can affect your memberships and licenses. A key consideration for real estate brokers, accountants, and lawyers among others.
Credit Rating vs. Being Debt Free

Which is more important: Your credit, or being debt free?  While everyone would like to become debt free without damaging their credit, if you had to choose one or the other which would it be?  In our opinion, the answer hinges on your ability to repay your debt.  If you can do it on your own, then you can preserve your credit rating and be debt free; a great combo!  If you can’t repay 100% of your debt on your own, then the only way to maintain your credit rating is to stay in debt.  In this case, we suggest that your credit rating is less important than becoming debt free, and that its time to consider your options.

Your Current Credit Rating

Bankruptcy’s affect on your credit rating is relative to how good your current credit rating is.  Many people that we hear from have been struggling with debt for some time and have either missed payments, maxed limits, or have certain debts in collections.  The negative affect of bankruptcy is less significant for people who’s credit rating may have already suffered from their financial situation.  This is an important consideration for those concerned by the bankruptcy’s affect on credit.

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