Have you ever heard of the TV show MythBusters? Well we’re going to do some “myth busting” of our own with respect to bankruptcy.
With household debt near a record level and interest rates on the rise, it should come as no surprise that Canadians are becoming increasingly worried about debt. In an Ipsos survey, one in three Canadians admitted to fearing bankruptcy. Millennials are finding themselves the most concerned. 62% are concerned about paying their bills, while 46% are worried about being pushed into bankruptcy.
With financial literacy lacking in this country, bankruptcy isn’t something most Canadians know very much about. It’s only when you’re on the brink of it that it becomes top of mind. With that in mind, here are three bankruptcy myths busted.
1. Filing for Bankruptcy Erases Your Student Loan Debt
Most employers these days are demanding more education. In our parent’s generation, you could often get by with just a high school diploma, while these days in many fields you need an undergraduate degree at a bare minimum.
Imagine you do everything right: you go to university, get straight A’s and graduate top of your class. The problem is that it’s in a field that’s not in demand. Instead of graduating with a well-paying job waiting for you, you’re left with a crippling level of student debt and no way to pay it off. Don’t think this could happen? It happens more often than you think.
If you were thinking about filing for bankruptcy to forgo paying back your student debt, I hate to break it to you, but you’re out of luck in most cases. While are sometimes when you can get out of paying back your student debt, you’ll need to jump through a lot of hoops to do so.
Similar to death and taxes, repaying your student debt is almost a certainty in life. If your student debt is under seven years old, then you’ll still be on the hook for repaying it even after you file for bankruptcy. The only option may be to apply for the repayment assistance program to lower your payment, but your student debt will still be there, so choose wisely a university program with good job prospects rather than a big mound of student debt waiting at the end.
2. Only Reckless Spenders File for Bankruptcy
Like it or not, there’s a negative stigma with bankruptcy. There’s a general belief out there that only reckless spenders file for bankruptcy, when that couldn’t be further from the truth.
I recently interviewed Ben Le Fort for my Burn Your Mortgage podcast whose parents, who were successful real estate agents, were forced to file for bankruptcy when the 2008 financial crisis happened and they didn’t have any emergency savings.
Sometimes life circumstances can throw you a curveball. You could lose your job, get sick or your partner could suddenly pass away. That’s why it’s so important to have an emergency fund. Three to six months’ living expenses should suffice, depending on the stability of your job. But that’s a lot to save if you don’t have any savings, so start small. Save whatever you can afford – $25 or $50 a week – to start. You’ll have a sizable emergency fund before you know it.
3. The Insolvency Trustee You Go With Doesn’t Matter
When you’re hiring a real estate agent, you wouldn’t hire the first one that you meet (at least I hope not). You’d take the time to interview at least two or three agents before making your final decision. The same holds true with trustees.
Choosing an insolvency trustee is kind of like picking a lawyer. The trustee you end up working with can have a huge impact on how your bankruptcy is handled and how your financial future plays out.
There are over 900 licensed insolvency trustees in Canada. Each one may interpret the Bankruptcy and Insolvency Act differently. Taking the time to interview at least a couple is time well spent. These are just three bankruptcy myths. Thinking about filing for bankruptcy? Speak with one of our experts to see what makes the most sense for you.
How much money is ideal to pay towards Visa #2? Personal finance is very personal, so it depends on your own personal situation. Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your debts.
Are you motivated to pay off your debts that much sooner? Go on the offense with your finances by bringing in extra income or go on the defense by cutting expenses. For example, if you’re a good photographer, you could be a wedding photographer in your spare time. Likewise, if you’re looking to save money, instead of buying lunch every day at work, you could pack your lunch once or twice a week.
About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.