Bankruptcy as a Last Resort

Filing for bankruptcy involves legally declaring that an individual or organization cannot pay their creditors back. It should be used only as a last resort for those in a difficult financial situation with no other way out. The process of filing for bankruptcy is regulated by the federal government and the cost is reasonable. It involves surrendering your assets to a trustee in exchange for erasure of nearly all debts. Fines, fraud, alimony, child support, and some student loans cannot be cleared by filing for bankruptcy. In order to qualify, an individual must live or do business in Canada and must be insolvent. In other words there must be a debt over $1000 and the individual unable to pay the debts on time. The leading causes for bankruptcy in Canada are job loss or reduced income, separation or divorce, and medical problems. Bankruptcy should be used as a last resort because there are other less extreme options available to clearing debts.

The main disadvantage to filing for bankruptcy is that it affects your credit rating negatively. If you have built up any type of credit up to this point, it will set you back to zero and you will not qualify for any type of loan or credit card. Furthermore, once you file for bankruptcy it is required that detailed records of expenses and income be recorded. Before considering bankruptcy as an option you should explore financial alternatives. These include money management techniques, using debt consolidation loans, and meeting with a Credit Counselor.

Money management techniques are sometimes feasible for those considering bankruptcy. It involves taking a closer look at your income and expenses while creating a budget. The idea of money management is to eliminate unnecessary expenses and cut down on the indispensable ones. Cutting up credit cards, refraining from unneeded shopping, and shopping at a much cheaper grocery store are all great ways to manage your money and start to pay off outstanding debts. You may also consider debt consolidation loans which are designed to pay back debts and give the lender the convenience of one easy payment with a lower interest rate. Lastly, meeting with a Credit Counselor is highly recommended before filing for bankruptcy. Their job is to help people with their budgets, educate them about money management skills, and possibly even set up a debt management plan with the creditors.

Making the decision to file for bankruptcy should not be one that is taken lightly as it can affect your financial standing for years to come. Not only will it hinder future financial needs, but it can be detrimental to the moral character of the person filing.